wmeubank@ocp.kcmo.com
PRUDENTIAL SECURITIES, INC.
One New York Plaza, New York, New York
(September 22, 1997) COTTON: The market closed at the best level in almost a month, following a bearish report which showed the biggest increase in the September crop estimate since 1984.
The work in these lock-ups now starts at two-thirty in the morning. After a few cups of coffee, there is time to do a lot of damage, and the USDA certainly did that. Last season's world crop was increased 275,000 bales, thanks to putting another 383,000 bales down to India. But the big number was the increase in consumption. The USDA added another 1,238,000 bales to the total, finding 270,000 here, 300,000 in India, and a big 800,000 bales in China. That brings us into this season with almost 700,000 bales less than we thought, and the projection for the current season threatens to take 1.1 million bales off the new number.
Next to this work, the crop numbers, although making the headlines, were small change. Texas easily took the honors, adding 400,000 bales to the total, with 350,000 coming from the High Plains. Conventional wisdom wants to take 250,000 bales back out of the Southeast, but that could easily be replaced by West Texas if the weather in the second half of September is as good as the first half.
The USDA seems willing to ratchet consumption up along with the crops. Aside from our domestic addition, India's usage was increased in line with its larger crop, and China was plussed to an even greater extent. That speaks for a lot of coffee last night.
In retrospect, the summer has been fairly benign for all crops. Cotton has worked its way back to trendline yields, thanks to early August rains. In fact, the June-August period produced very close to average temperatures and rainfall in much of our area.
August has been uneventful elsewhere. To prove it, soybean yields were exactly unchanged for the month, the only time in over twenty years. Corn yields were marked down one-tenth of a bushel. Both these crops are on the way to their second best yields in history.
So where are we? Working our way back into this morass of a trading range, frustrating the shorts for a change, having made life miserable for the longs for the last two months. Should Hurricane Linda work its way tip into Southern California by the middle of next week and then into Arizona, those shorts will have trouble getting through the door at the same time. And then once that happens, we'll be back to where we were.
I suspect that the current crop estimates will, on balance, prove accurate. The burden seems to be on the demand side, especially in China, where the current CCI trip seems to raise more questions than it can answer. There doesn't seem any quick way out of this trap.
Herman Kohlmeyer for Ernest Simon
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