Last season's relatively low prices are boosting 1989/90 cotton consumption in the U.S. while restricting production. Excessive beginning stocks will be trimmed to under 3.9 million bales - a number that can become critical if domestic and export business pick up in the next few months. World consumption in 1989/90 is expected to exceed world production by a healthy margin and pull world stocks down to marginal levels by the end of the season.

PRC is expected to remain the world's number one producer and consumer, although its mill use and exports will be limited by tight supplies. With their consumption of over 19 million bales and low carryover stocks, they should continue to buy U.S. and world cotton in the months to come if the foreign exchange to purchase is available.

Looking ahead to 1990/91, this season's higher prices should encourage a production increase in the U.S. to about 15.2 million bales. When balanced against an offtake of 14.5 million bales, this should build our carryover back to near 4 1/2 million bales. By the same token, world production should rise to near 87.5 million bales against world consumption near 86 million bales. World stocks would increase by 1 1/2-2 million bales but when weighed against the volume of world consumption this is not a burdensome carryover.

We certainly have the potential for a bullish scenario for 1990/91 as we move into the planting season with beginning stocks at low levels in the U.S. and world. Any negatives in production or improvement in textile business will rapidly influence December 1990 Futures to much higher levels. However, we can have negative price variations from today's levels if we enter a recession in the U.S. which will also be felt abroad at some point in the future. Today there seems to be a slight slowdown in domestic textile business but nothing substantial at the present time. From a producers perspective, any rallies in new December above 66 cents should be a point where one should hedge 25-50% of his crop.