Friday, July 9, 2010

Spot on for cotton

I was very close to USDA's cotton production estimate released this week. USDA gives a crop of 18.3 million bales and the corrected model, which is really the 'best guess' was right there at 18.31. This is a good way to clarify again the two different models. The corrected model is the best guess for the crop, understanding that there is often some decline in conditions throughout the year and this is incorporated, just as a USDA estimate should naturally include this when they estimate their relationships in predicting final yield. Alternatively, the uncorrected model is the crop in the field in today's conditions, no forward look as to where it is likely to head. This is in some ways the potential of the crop. If conditions stayed the same (which historically is unlikely) this is what the yield would be. So when folks are talking about the potential of this crop this may be closer to that upside.

This is a big number and adjustment from the USDA which may also signal some of that potential in the cotton crop. I've historically had trouble with the cotton numbers. Last year the model seemed to do quite well but there are some features of cotton when compared to corn and soybeans that make estimates more difficult. I think the one thing you can take away from what the model suggests as well as industry talk is that the current crop has the potential to be quite large. Is 19 million bales possible?

(Green dots are yesterday's trade estimates which ranged from 17.0 to 17.9 million bales)

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