March 4, 2010

Cotton Market Weekly March 4, 2010

Cotton futures on the Intercontinental Exchange (ICE) touched their highest levels in nearly two years on Monday as bullish fundamental and technical sentiment continued to boost prices. The remainder of the week was characterized by an “up one day, down the next” pattern as prices attempted a correction of at least a consolidation of the recent run-up in values.

Due to lower world production and growing demand in the ongoing 2009-10 season, cotton prices climbed to levels not seen in years. Futures prices were boosted by expectations that growing world demand would boost U.S. cotton exports and draw on available supplies amid a lower-than-expected harvest. In the meantime, producers now are looking at the prices for corn and soybeans, among other crops, to determine which will be most profitable to plant in the upcoming months.

“In the pre-planting battle between row-crop prices, the cotton market still is fully engaged in the annual fight for planted acreage,” a trader said. “High prices now will ‘buy’ more cotton acres and lead to stronger production in the upcoming season.”

Cotton traders are anticipating USDA’s March supply/demand report, scheduled for release on March 10, for more cues on the fundamental situation. USDA’s most recent estimate for cotton plantings is 10.5 million acres, up 15 percent from last year and the largest year-to-year increase since 1995.

According to an analyst, the theory of higher cotton prices enticing farmers to plant a massive amount of the fiber might not ring true in other cotton producing nations. In India, food shortages already have been reported. The situation does not promote an increase in fiber production when the current agricultural conditions there could cause a poor rice crop yield. The Indian wheat crop also appears to continue its declining yield trend as the many consecutive years of using government subsidized land has all but stripped the soil of its ability to support crops.

In China, the government has extended favorable financing for farmers to grow grain, not cotton. In a country with the world’s largest population and the fastest growing economy on the planet, the financing will further encourage the production of food over fiber.

“In short, before they leave their houses in the morning, people need to eat breakfast before they get dressed to go to work,” an analyst explained.

In other news, USDA’s export sales and shipment report was slightly better than expected as net sales of U.S. cotton in the week ended Feb. 25 reached 133,000 bales. The figure was up 17 percent from the previous week, but 63 percent lower than the four-week average. Major buyers were Turkey, China, Mexico, and Thailand. Net sales of 34,300 bales for delivery in 2010-11 were mainly for Mexico, South Korea, and Thailand.

At 289,400 bales, export shipments reached a new marketing year high. Exports were up 25 percent from the previous week and 38 percent from the four-week average. Primary destinations were China, Turkey, Mexico, and Thailand.

In order to reach the department’s export projection for the year, roughly 6.3 million bales will need to be shipped over the rest of this crop year, the same number as was actually shipped during the same period last year. In the five years prior to that, shipments averaged 7.6 million bales from late February through the end of the season.

In the spot cotton market, growers in Texas, Oklahoma, and Kansas sold 3,940 bales online in the week ended March 4 compared to the previous week when 19,243 bales were traded. Prices received by producers ranged from 67.06 to 70.58 cents per pound versus 62.91 to 73.23 cents per pound one week earlier.