The USDA report was a mild shock as the 18.85 million bale estimate was larger than even the most optimistic pre-report prognostications. Some optimism can be gained from the fact that USDA's forecast for U.S. mill use and exports was increased 100,000 bales each to 11.4 and 7.0 million bales, respectively. However, this was probably just an adjustment to account for a slight improvement in demand as a result of lower prices. The key to substantial price recovery will most certainly be exports. The Pakistan and Uzbekistan crops are larger than last year and exports are expected to increase.
Uncertainties surround the India and China situation.
Unless something unforeseen reduces the size of the U.S. crop, we could very well be set in for a rather lackluster, sideways market for the next 3 months or so until export prospects become more known. Should this develop, careful analysis is needed to determine the proper decision on pricing and storing the uncommitted portion of your '97 crop. The current spread between the December and March futures is only 149 points and 261 points between the December and May futures. A basis gain of about 200 points, in addition to the spread, typically helps pay for storage but this harvest season the basis is already more narrow than normal and typically does not improve much during years when this happens. This will make profitable storage tougher this year.