June 19, 2003
An erratic cotton market emerged this week as traders began preparing for the July futures contract's first notice day on June 24. While some traders rolled their positions from the July contract to December's, more traders simply exited their positions in the market.
Despite the wide daily swings in prices at the New York Cotton Exchange, one analyst described the liquidation process as orderly. Early, steep losses in the futures market following the release of a disappointing export report Thursday were offset by "massive" trade buying that helped recoup much of the price decline before the close of trading. At least one market observer saw the trade buying as a bullish signal.
Traders and analysts had expected a lower weekly export figure following a significant decline in the Step 2 Certificate value. However, the drop in export sales may have been slightly more than anticipated.
USDA reported export sales of U.S. cotton for the week ended June 12 totaled a net 71,600 bales, a 52 percent decline from the previous week and 46 percent less than the previous four-week average. Turkey was the featured buyer.
Export shipments for the week totaled 211,100 bales, according to USDA, off 30 percent from the previous week and 21 percent from the prior four-week average. Primary destinations were Turkey, Mexico and China. Despite the disappointing shipment figure, many traders continue to expect exports to reach USDA's 11.4-million-bale target by the end of the current marketing season.
Traders also continue to keep close watch on certificated stocks that have declined somewhat recently. One analyst believes the decline is significant because that cotton may have been sold or committed during recent weeks when export sales were larger than normal for this time of year. In other words, that cotton no longer is a market factor on the supply side of the equation.
Meanwhile, traders remain nervous about crop conditions around the world. Less than ideal growing conditions in Central Asia and China have been noted, and the monsoon in India appears to be late, leaving many fields too dry as that country enters its prime planting period. Although some scattered showers have been reported in most of India's cotton growing regions, much more is needed before planting can begin in earnest.
Losses of as many as one million cotton acres in West Texas have had little market impact thus far. Some market observers view the recent adverse weather as "not uncommon" for the region, citing the potential for replanting.
Determining the extent of losses from hail, high winds and excessive rainfall has been delayed due, in part, to new crop insurance rules that require adjusters to wait eight days before evaluating affected fields. Consequently, farmers are forced to delay replanting decisions, thus delaying any major market reaction.
Conditions in the Delta and Southeast also continue to be less than ideal. Prolonged wet weather and cooler-than-normal temperatures have had an obvious impact on yield potential in both regions. One exception is Georgia which has one of the best crops in the nation at this point in the season. Arizona is another state where growing conditions have been good.
Other market factors that continue to feed the bulls are reports of improving Asian economies and projections for increased cotton consumption in China. Both factors seem to validate expectations for world consumption to outpace world production in the coming marketing year.
The week ended June 19 witnessed increased activity in the spot cotton market. Online sales by producers in Texas, Oklahoma and Kansas totaled 13,202 bales for the week, more than doubling the previous week's volume of 6,012 bales. Average daily prices received by producers selling their cotton online ranged from 48.65 to 49.25 cents per pound.