September 4, 2008

Weather continued to be the main focus of the market this week as multiple storms loomed on the radar. However, cotton futures prices on the New York Board of Trade settled sharply lower Thursday under pressure from the rallying U.S. dollar amid a lack of buying.

“The direction of the U.S. dollar ultimately determines where cotton trades, but expectations for weekend storm damage will support cotton into the weekend,” a trader said. “It’s an empty market right now as everyone is waiting on the hurricanes to hit. Crops haven’t had a chance to dry out between Hurricanes Fay and Gustav in the Southeast and Delta regions, and now more storms are on the way,” he added.

Tropical Storm Hanna is forecast to make landfall, possibly at hurricane strength, on the coast of the Carolinas, according to the National Weather Service. Behind Hanna is Hurricane Ike, followed by Tropical Storm Josephine. Many traders feel that while the most recent storms of the season have helped some cotton-growing areas and hurt others, approaching storms almost certainly will lead to reduced cotton yield.

“The cotton crop in the Delta got pummeled, and Hanna could certainly pummel the Georgia crop,” a local analyst said. “As cotton bolls open, rain coupled with cool, cloudy weather could leave the crop vulnerable to yield-reducing boll rot.”

Meanwhile, a segment of the market seems to care little about the supply and is more concerned about losing demand. News from China is not good in this regard. Local prices there remain under pressure, signaling there is plenty of cotton to satisfy mill demand at the moment, especially with the availability of new crop cotton just around the corner.

“We may not see a lot of Chinese business in the foreseeable future, and any potential supply shortage is probably not going to be noticeable until much later in the season,” traders warn.

Ultimately, many market observers feel that China will follow a trend similar to the United States and eventually will shift a large amount of its farmland into grain production. The common belief is the drive to feed the people of China will outweigh the need to clothe them. Therefore, they will rely more heavily on cotton imports.

“It’s more than likely that China will be more dependent on places like Brazil, India, and the U.S. for their cotton supply while leaving as much arable land as possible free to grow crops that can be eaten by both humans and livestock,” an analyst said.

In the meantime, net export sales of 24,400 bales of U.S. cotton in the week ended Aug. 28 were down a staggering 91 percent from the previous week and 89 percent from the four-week average. Turkey, Taiwan and Japan were featured buyers.

At 226,300 bales, export shipments were 16 percent lower than the previous week and 19 percent less than the four-week average. Primary destinations were China, Mexico, Turkey, and Thailand.

Spot cotton sales also decreased in the week ended Sept. 4 as online trading by producers in Texas, Oklahoma, and Kansas totaled 843 bales compared to 4,347 bales the previous week. Average prices received by producers ranged from 59.50 to 64.75 cents per pound versus 57.76 to 63.87 cents per pound the previous week.