wmeubank@ocp.kcmo.com
PRUDENTIAL SECURITIES, INC.
One New York Plaza, New York, New York
(August 11, 1997) COTTON: Prices softened as crops improved this week bulls can breathe a sigh of relief that they were not more badly damaged by the rains which covered an important segment of the West Texas and Mid-South growing areas. Bears won most of the battles this week, not only on Wall Street, where the Dow was down 163, but also in Chicago, where soybeans lost 18 cents and corn 12 cents.
The question on everyone's mind will be answered Tuesday morning: how much cotton does the USDA think was out there on the first of the month. The average guess is at about 17¾ million bales, but that won't count for much when the cards are turned up.
In the past ten years, the crop has increased in size six times from the August report by an average of 695,000 bales. The largest increase was in 1987, when growers were treated to perfect harvest weather, and the crop grew 1,853,000 bales, or 14.4%. The other five seasons saw increases averaging 395,000 bales. In the four seasons which saw the crop shrink, two years had minor losses. The beet army worm cost us 2,441,000 bales, or 13.2%, in 1993. The dry summer and heavy insect pressure two years later cost growers 3,911,000 bales, or 18%, by far the biggest change in either direction in over fifty years.
We have to go back to 1984 to find an August report which proved to be the lowest of the season, so enough of the talk that this one will be, the smallest for the year. The odds are against that. Neither can we be comfortable that this report takes us much of the way home. In the six years in which the crop grew larger, the September crop was smaller than the August four times, sending out bad signals. In the two years in which we had big reductions, only about one-third of the loss was revealed by the September survey.
The USDA's August estimate of our total usage has proven low seven out of ten years. The estimate for consumption has been low eight times in that period, while they batted .500 on the export number. Ending stocks, a derived number, have been low seven out of ten times.
Where do we go from here? On the basis of the cards on the table, nowhere. The four-cent trading range has been intact for thirteen months, and there's no reason to expect us to escape from it on present evidence. Of course, we're all schooled to look for this to come to an end, and that's all we can do. Important market loans have been the rule rather than the exception in the nineties. Many of them have come only after bad breaks which followed the August estimate.
For the past ten years. the report has caused five limit moves, three down, two up. Only twice has the response been less than one hundred points, and on one of those times, the range was over two hundred points. Basically, we're wasting our breath until we see these numbers. Get a good night's sleep Monday.
Herman S. Kohlmeyer for Ernest Simon
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