February 5, 1998

New York Cotton futures rallied on a bullish U.S. cotton acreage figure before falling slightly on trade and local selling ahead of Friday's March options expiration. Even a higher-than-expected export sales figure could not move the market significantly. However, some in the industry believe market focus may again return to thoughts of U.S. cotton acreage and the 1998-99 season after March options expire.

The National Cotton Council's (NCC) annual survey of growers' planting intentions for 1998-99 supports early thoughts of a substantial reduction in cotton acreage, which suggests a potential 3.0 million bale decline in U.S. output from USDA's January estimate of 18.9 million bales.

NCC now estimates 12.1 million U.S. acres will be planted to cotton in 1998-99, down 12 percent from 13.8 million a year ago. Therefore, U.S. cotton acreage could be the lowest since 10.6 million acres were planted in 1989-90. The primary reason for the decline in cotton acreage is grower dissatisfaction with current spot and futures prices which put cotton at a disadvantage to competing crops.

The largest decline is expected to occur in the Mid-South, where upland cotton area is projected at 2.7 million acres, down 21 percent. Declines in acres will be smaller in the Southwest as growers intend to plant 5.2 million acres, reducing cotton acres in the region by only nine percent. In Texas, cotton acres also are expected to decline to 4.9 million acres with Oklahoma basically unchanged at 200,000 acres.

Demand for U.S. cotton in 1998-99 likely will use up much of the season's smaller crop and result in much lower ending stocks, according to NCC. The combined export and mill demand coupled with a smaller crop could lead to U.S. ending stocks of 2.7 million bales in 1998-99, a significant decline from this year's 4.3 million.

In other news, USDA's weekly export sales figure was better than expected as many Asian buyers were devoting their time to celebration of the Chinese Lunar New Year. The department reported net export sales of 1997-98 crop cotton increased 92,300 bales for the week ended January 29, higher than last week's sales of 87,500 bales. Featured buyers were Mexico, Turkey, Indonesia and China. In addition, USDA reported net export sales of 1998-99 U.S. cotton totaled only 9,900 bales for the same period, compared with 23,500 the previous week.

According to one market observer, many in the market will focus a considerable amount of their attention on upcoming export reports as competition for export business will increase this spring and summer. Australia, a chief export competitor with a record large crop this year, has not yet harvested cotton. Competition also will come from West Africa and Uzbekistan.

Additionally, concerns linger about possibly lower U.S. cotton sales to Asia and other areas of the world. But U.S. sales have been strong in 1997-98, with many industry analysts expecting final exports to reach or even exceed USDA's 7.3 million bales for this season. However, one analyst noted that much of the U.S. export sales to Asian countries has yet to be shipped. He noted that as of January 22, the U.S. had sold approximately 3.5 million bales to the region and shipped only 50 percent. Therefore, Asia's financial problems will continue to be monitored closely, as they could have a significant effect on U.S. and world cotton trade.

On the spot cotton scene, sales soared as market prices rose to a level more attractive to producers. In the five trading days ended February 5, sales of cotton on the TELCOT electronic marketing system totaled 148,780 bales, more than doubling the previous week's 64,797 bale figure. Average daily prices received by producers on TELCOT ranged from 55.97 to 57.44 cents per pound during the week.