July 22, 2010
Cotton futures prices on the Intercontinental Exchange (ICE) rose Thursday as available cotton stocks were whittled away, and end-users strategized means to acquire more fiber.
Cotton prices have been stuck within a 73-cent to 75-cent range for the last two weeks after sliding lower on the outlook for a bumper U.S. cotton harvest in the fall, traders said. World supplies now are low after demand rebounded with macroeconomic conditions. Overseas, textile demand is strong, and those end-users have been buying cotton that will be delivered in the fall. “So much of the incoming U.S. crop has been sold it’s making commercial traders nervous that the cotton they would like to purchase via futures may not be there when they need it,” an analyst explained. “People also are reluctant to step into this market on the buy side because the crop just keeps getting bigger.”
The United States is the world’s third largest cotton producer and the top exporter. USDA expects domestic cotton output will grow by 50 percent from last year to 18.30 million bales as planting and production have vaulted higher in step with soaring prices. Cotton futures hit two-year highs in April as world textile demand rebounded with the economy.
However, economic growth is once again in question, and some traders express pessimism that the huge world crop will be in demand. The fall harvest in India, the world’s number two cotton producer behind China, also is expected to be larger.
Others believe demand will remain strong due to the unusual carryover situation in the upcoming season. The U.S. will begin the 2010-11 cotton season with at least 5.1 million bales of export commitments on the books, but the number could be closer to 5.7 million bales by August 1. “Since only 2.9 million bales will be left in inventory at the end of July, according to USDA, the U.S. will start the new season roughly 2.8 million bales “short,” meaning that the bales needed to meet these existing commitments have yet to be produced,” a trader said. “This number is likely to grow quite a bit bigger in August and September before harvest gains momentum. This makes the situation quite unusual because beginning stocks typically more than cover existing commitments at the beginning of the new year,” he added.
Meanwhile, due to the lack of available cotton in the spot market, growers in Texas, Oklahoma, and Kansas sold no cotton online in the week ended July 22. However, export sales remain healthy. For the week ended July 15, USDA reported net export sales of 92,700 bales for delivery in 2009-10. The figure was down 14 percent from the previous week and 13 percent from the four-week average. Indonesia, Brazil, and Pakistan were the week’s top buyers. Net sales of 287,300 bales for delivery in 2010-11 were mainly for China, Turkey, and Indonesia. Export shipments of 332,600 were up 99 percent from the previous week and 18 percent from the four-week average. Primary destinations included China, Turkey, and Mexico.
In other crop news, the tropical storm forming in the Bahamas could usher welcome precipitation into the cotton growing areas of the southeastern United States, the Mississippi River Delta region, and parts of Texas. The storm is expected to track a path along northern Cuba and southern Florida and into the Gulf of Mexico sometime on Friday, July 23. The system could approach Louisiana or Texas coastlines by early Sunday.