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MERRILL LYNCH & CO.
North Tower, 21st Floor, New York, New York
(November 26, 1997) COTTON: The cotton market continues to be on the defensive and it seems like the uncertain economic picture in South Asia continues to be a shroud over the market. While there are fears of demand slowing, we continue to hear of brisk sales of U.S. cotton and the export sales reports have been confirming that this is the case. We believe exports will exceed the USDA target and this will help offset the large U.S. crop.
Many parallels could be drawn between this season and 1994 including the pervasive negative sentiment that exists. In that year despite a record U.S. crop, prices jumped to all-time highs reflecting tightness in the overseas markets and excellent residual demand for U.S. cotton as a result. While by no means are we suggesting a repeat performance, problems with the Pakistani crop, brisk sales to date and ongoing purchases by non-Asian importers should continue to provide underpinning.
Seasonally the market should be beginning to turn upwards and attention will begin to shift away from 1997-98 output onto plantings for the 1998-99 crops. Expectations are for slightly reduced acreage because of the weaker prices. While attention might be turning forwards there are still some questions regarding the 1997-98 U.S. outturn even with 85% of the crop harvested. The latest crop progress report shows harvesting 2% further along than last year, but classings and ginnings are running behind. This suggests that there is still a possibility that the crop might not meet the USDA target.
(Reprinted by permission. Coypright © 1997 Merrill Lynch, Pierce, Fenner & Smith Incorporated.)
Judith Ganes
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