AQCA Market Report

March 25, 2010

Believe it or not we are still receiving cotton.  This has been one for the record books in terms of a long delivery period, but we feel comfortable that only 38% of AQCA's production is yet to be assigned to a final sale at this point.

May futures north of 81 cents makes it more difficult to sell US cotton since there is still Indian and West African cotton available in the world.  However export reports have been steady the past several weeks despite the 80-cent plus market, confirming our view that mills in the world need cotton and there are not many alternatives to US cotton at this time.  While the board is currently the best place to sell tenderable cotton as evidenced by 800,000 plus bales of certificated stock, non tenderable cotton is obviously finding homes in the export market.  Since mills have cotton on call that will be fixed against the May and July contacts coupled with the fact that they obviously have more buying to do, a retreat in futures prices would be well supported in the upper 70's.

The disposition of the cert stock will be determined by how long the Indian and African cottons hold out and whether mill business in the world stays strong enough to pay 85-90 cents per pound (landed price) for US cotton.  At this point the answer to those questions appears to be that India and Africa cannot supply the world beyond the second quarter of the calendar year, and that business still supports a higher cotton price.  If these two answers remain unchanged, the cert stocks will be greatly reduced between now and the July delivery.

All eyes in the cotton world are looking to the March 31 prospective planting report for 2010.  Most planting estimates range from 10.1 to 10.6 million acres.  Our belief is that the NCC's estimate of 10.1 million acres is a minimum number, and that acreage will likely be much closer to 10.5 million acres.  However, genuine uncertainty among US farmers persists, and it will be late June before we know for sure the US acreage number. Nonetheless, a 16 million plus bale US crop is likely and that will still paint a tight picture for world stocks. 

This crop year, we will consume roughly 12 million bales more that we produced in the world.  Assuming static demand, the world needs to produce an additional 12 million bales for stocks to remain unchanged.  Acreage increases in the US and returns to "normal" yields in the world should account for 5 million additional bales.  Where will the remaining 7 million bales come from?  Again, these numbers are assuming that demand remains strong and we are fairly confident that we will experience growth in consumption.  Suffice it to say that in our opinion there is greater upside potential for new crop cotton than downside.  The cotton market finally has its own story to tell and seems to be trading fundamentals for the first time in quite a spell.

During Autauga's 43rd Annual Meeting on March 23, Cargill recommended and the AQCA Board of Directors approved March progress payments of 4 cents and 7 cents for the seasonal and aggressive pools, respectively.  Currently members in the seasonal pool have received 14 cents, while members in the aggressive pool have received 19 cents over their respective full loan values, expressed in Rule 5 terms.

Please know that we have an open-door policy at Cargill Cotton, so call us if you have any questions.  We appreciate your trust to employ us as your marketing agent.

Best regards,

Cargill Cotton