Cotton Market Outlook. Anthony Tancredi CEO Allenberg Cotton Co. / Senior Global Platform Head Louis Dreyfus Commodities

Transcription

1 Cotton Market Outlook Anthony Tancredi CEO Allenberg Cotton Co. / Senior Global Platform Head Louis Dreyfus Commodities

2 ONE THING IS CERTAIN: There is too much cotton!

3 NEARBY ICE FUTURES Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15

4 WORLD TRADE IN COTTON MLN 480 S / / / / / / /16 Source: USDA

5 CHINA IMPORTS /12 12/13 13/14 14/15 15/16

6 ENDING STOCKS - WORLD OUTSIDE CHINA MLN 480 S

7 Is the cotton industry in its sunset?

8 % World Market Share of Cotton in Textile Fiber Use Source: ICAC World Textile Demand, May 2015

9 Latest News Headline: If your clothes aren t already made out of plastic, they will be. Quartz Online News

10 Quote from the news article: Because [polyester is] inexpensive, easy to blend with other materials, remarkably improved in its look and feel, and no worse for the environment than conventionally grown cotton, it has allowed us to keep churning out more and more cheap clothes without a hiccup. Quartz Online News

11 OTHER RECENT HEADLINES Synthetic fibers surpass cotton to dominate U.S. apparel imports Cotton falls to five-year low on China import quota worries American affair with cotton frays as man-made fibers take to catwalk Global cellulose fiber market to grow at 9.75% annually Cotton farmers hit by falling prices, rising input costs and China s import squeeze Cotton s Great Unraveling Athleisure wear: Goodbye blue jeans, hello yoga pants Recycled polyester market eyes buoyant 2015 The new trend of used clothes

12 WHY COTTON IS LOSING THE BATTLE WITH SYNTHETICS Polyester Yesterday Polyester Today

13 Jan-89 Sep-89 May-90 Jan-91 Sep-91 May-92 Jan-93 Sep-93 May-94 Jan-95 Sep-95 May-96 Jan-97 Sep-97 May-98 Jan-99 Sep-99 May-00 Jan-01 Sep-01 May-02 Jan-03 Sep-03 May-04 Jan-05 Sep-05 May-06 Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Jan-11 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 percent Cotton MMF USA Apparel Market Share by Fiber

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16 USA IMPORTS OF APPAREL FROM CHINA % CHANGE FROM PREVIOUS YEAR Aug-Apr 12/13 13/14 14/15 Cotton Manmade Fiber Source: OTEXA

17 USA TEXTILE AND APPAREL IMPORTS % PRIMARILY COTTON / / / / / / / / / / / / /15 YTD Source: OTEXA

18 US cents/lb China Cotton and Polyester Prices Cotton Polyester

19 CHINA (+HK) TEXTILE MILL DEMAND MMT Cotton Share 76% 62% 35% 26% 14% Polyester Share 10% 21% 44% 58% 67% All MMF Share 22% 36% 62% 73% 85% Final Consumer Demand ICAC: Review of World Situation, July August 2014

20 Aug-00 Feb-01 Aug-01 Feb-02 Aug-02 Feb-03 Aug-03 Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 cents per lb 230 NEARBY ICE FUTURES

21 Aug-00 Feb-01 Aug-01 Feb-02 Aug-02 Feb-03 Aug-03 Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 cents per lb 230 NEARBY ICE FUTURES

22 Aug-00 Feb-01 Aug-01 Feb-02 Aug-02 Feb-03 Aug-03 Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 cents per lb 230 NEARBY ICE FUTURES

23 Kilograms World Fiber Consumption Per Capita Cotton Non-cotton Source: ICAC World Textile Demand, May 2015

24 Millions 7500 World Population Source: ICAC World Textile Demand, May 2015

25 World Population Growth Rates % % % % %

26 WORLD COTTON CONSUMPTION MLN 480 S 12/13 13/14 14/15 15/16 % Change China % India % Pakistan % Bangladesh % Indonesia % Vietnam % Thailand % Turkey % Brazil % USA % +1% +2% +3% World %? Source: USDA

27 WORLD COTTON BALANCE SHEET CONSUMPTION GROWTH AT POPULATION GROWTH RATE 12/13 13/14 14/15 15/16 Begin Stocks Production Imports Consumption Consumption Source: USDA

28 WORLD COTTON BALANCE SHEET MLN 480 S 12/13 13/14 14/15 15/16 Begin Stocks Production Imports Consumption Exports Loss End Stocks Source: USDA

29 FREE STOCKS OF COTTON S World Ending Stocks Estimated China Reserve Stocks Free Stocks Average Cotton Futures cents/lb 11/ / / / / ? Source: USDA, Allenberg Cotton Co.

30 CHINA COTTON BALANCE SHEET MLN 480 LB BALES 10/11 11/12 12/13 13/14 14/15 15/16 Begin Stocks Production Imports Total Supply Consumption Exports Loss End Stocks Stocks/Use Source: USDA

31 China State Reserve Problem Like me, cotton becomes dull as it ages The State Reserve is at decision time Sale or rotation? Cannot wait The longer the Reserve waits, the harder it will be Officials claim State Reserve level should be 4mmt (18 mln bales). Today it is 11mmt (50mln bales) China has already restricted imports

32 CHINA S STATE RESERVE STOPS BUYING MLN 480 S World Production World Consumption Surplus Reserve Purchases 11/ / / / Source: USDA, Louis Dreyfus Commodities

33 CCA MEETING IN NINGBO JUNE Reserve announcement coming within 10 days Two week adjustment period before implementation Intention is not to pressure the market A lot of talk about rotation Preliminary 4 yr old cotton swapped out? Still uncertain about best policy Expect additional changes

34 Eastern Producers Leaving Cotton NCP Cotton area fell 14% in 13/14, then another 19% this year Indications are for a decrease of 25 to 30% in 15/16 Yangtze River area lost 9%, 16%, and 26%, respectively Farmers want low maintenance grain crops and factory jobs Nearly 70% of China s cotton now comes from Xinjiang, a remote province in the far west

35 The Choice

36 Xinjiang: Cotton s Last Stand in China Since 1999 agricultural land use has been steadily expanding in Xinjiang Cotton is nearly 50% of the spring-sown area Jobs are more scarce in the interior and Xinjiang farmers have continued growing cotton The last 3 years the Reserve bought the crop at $1.20+ This year they did not buy and local prices fell to 85 Farmers were promised subsidy based a $1.20 target They have not received their subsidy yet.

37 RMB/mt LOCAL CHINA COTTON VS IMPORTS 22,000 20,000 18,000 16,000 14,000 12,000 10,000 Imported Cotton Price Under 1% Tariff Dom 312B Price

38 Could China Solve Its Surplus? China is forecast to use 35.5 mln bales of cotton this year. Maybe. Production fell from 35 mln bales 3 years ago to just 30 mln bales this year Forecasts for next year are mln bales. If an 11 mln bale deficit materializes, China s surplus could be manageable in 3 years

39 USA RETURNS OVER VARIABLE COSTS COTTON VS COMPETING CROPS - $/PLANTED ACRE DELTA Cotton Corn Beans S/E Cotton Corn Beans TEXAS Cotton Corn Sorghum Source: LD Commodities

40 USA RETURNS OVER VARIABLE COSTS COTTON VS COMPETING CROPS - $/PLANTED ACRE DELTA Cotton Corn Beans Peanuts S/E Cotton Corn Beans Peanuts TEXAS Cotton Corn Sorghum Peanuts Source: LD Commodities

41 USA RETURNS OVER VARIABLE COSTS RETURNS/VARIABLE COSTS DELTA Cotton Corn Beans Peanuts % 80% 108% 27% % 65% 102% 26% % 41% 73% 39% S/E Cotton Corn Beans Peanuts % 61% 100% 24% % 57% 98% 29% % 32% 62% 38% TEXAS Cotton Corn Sorghum Peanuts % 59% 30% 6% % 44% 13% 9% % 26% 22% 22% Source: LD Commodities

42 Inches LUBBOCK, TEXAS JAN THROUGH MAY PRECIPITATION

43 USA COTTON BALANCE SHEET MLN 480 S 11/12 12/13 13/14 14/15 15/16 Beg Stocks Production Supply Mill Exports Total Use Unacc End Stocks USDA

44 Season USA COTTON EXPORTS MLN 480 LB BALES Total USA Exports USA Exports to China USA Exports without China Brazil, India, Australia Exports 06/ / / / / / / / / / Source: USDA, Allenberg Cotton

45 USA COTTON BALANCE SHEET MLN 480 S 11/12 12/13 13/14 14/15 15/16 Beg Stocks Production Supply Mill Exports Total Use Unacc End Stocks USDA

46 USA STOCKS/USE RATIO - CURRENT (USDA) Year Stocks /Use x 0.38 x x 0.55 x x 0.53 x x x x x 0.40 x x 0.38 x

47 INDIA S 13/14 14/15 15/16 Begin Stocks Production Imports Total Supply Consumption Exports Loss End Stocks Stocks/Use USDA

48 CONCLUSION IS THERE ONE?

49 USA: GAINS FROM REDUCED INDIA SALES India cotton exports normally peak Dec Feb Past two years India shipped huge volumes during that time period, stifling USA sales Today India market uncertain over impact of MSP Claims to be raising MSP 2.5% for next year Roughly 170 pts Reduced offers for sale, less competitive price, fewer sales USA export sales benefit

50 COTTON EXPORTS: INDIA VS USA MLN 480 S / / / / / / /16 US India Source: USDA

51 $USA STRENGTH COULD REDUCE EXPORTS:

52 RECURRING CHALLENGE: GLOBAL GOVERNMENT POLICY China USA India

53 GOVERNMENT SUPPORT LEVELS FOR COTTON /LB China India US

54 IMPACT OF GOVERNMENT SUPPORT Price cannot properly adjust planted area or usage when government support exceeds market level Producers in China and India benefit Producers in Brazil and Pakistan too, but not as much Producers in USA not until market falls below 52c Current government involvement sidelines fundamental analysis Markets held hostage by actions of foreign governments

55 CONCLUSION: MMF DEBACLE Remember Cotton is the Enemy? Time for our industry to fight back MUST find a way to increase demand for cotton Study environmental impact of MMF vs Cotton Advertise positives about cotton: sustainability, natural fiber etc Work with Cotton Incorporated to make a more visible industry Highlight USA farmers and farm products Without a concerted and unified effort, MMF will continue to erode our business

56 CONCLUSION: CHINA Stockpile still huge, still most important issue in the market Policy is changing, nobody sure how or when Appears resolution is internally focused Reduced imports, reduced production Demand increase in China is not for certain Mills admit increasing MMF usage Mills spinning higher counts, using less cotton Mill demand versus reserve quality could lead to more imports Remember: for every reserve bale used and not replaced, a bale adds to the world free stocks

57 CONCLUSION: USA Planted area could be less than anticipated Delta simply planting more beans Texas rains prevented some planting Balance sheet not much different than last year Reduced China imports hurts USA exports India program allows USA more room to maneuver Texas could surprise in USA production level When crop is up and comfortable price will move to start increasing sales USA export sales pace determining factor in price levels

58 CONCLUSION: INDIA Government demonstrated willingness to be heavily involved Regardless, with low exports there is too much cotton Now government claims it will raise MSP 2.5% With forecast flat to lower market, India government will be back in business again India exports suffer [USDA says +1.1 mln over last year?] Less pressure on flat price More opportunity for USA Likely India changes policy or accepts losses next year and exports competitively

59 CONCLUSION: MESS WE CALL THE COTTON MARKET Fundamentals.remember those? They still matter 110 million bale end stocks = gigantic Similarity between last year and this year in early overall outlook Must look for the exceptions the changes that make outcomes different China & India government policy critical, both likely to act differently than last year at some point Watch what they do, not what they say

60 CONCLUSION: MESS WE CALL THE COTTON MARKET Global stocks > 110 mln bales should have dropped price to record lows Market unable to get price signals equal to stocks situation Price cannot correct without full weight of stocks Without lower price, consumption increases are unlikely Global cotton market must find way to increase cotton use As long as government policies control inventories, market signals will be muted and uncertain, price unwilling to fall Release of government stocks alters global balance sheet Trading will continue range-bound until supply/demand returns to the forefront of market analytics Reduced fundamental activity allows speculators more control

61 A NEW APPROACH TO USA COTTON? Unify the segments to approach industry problems No producer = no cotton No textile mills = no market Stronger connections in the value chain One segment s problems do impact all others Can t isolate ourselves in our comfort area

62 Cotton has survived difficult times in the past Keep your eyes and ears open Changes are coming, some fleeting & some permanent Know the difference!