February 26, 2004
New York cotton futures rallied to a strong finish on Feb. 26 as trade and speculative buying was spurred on by discussion that China will be purchasing more cotton in the coming weeks. Traders said unconfirmed reports that China has issued additional cotton import permits whipped through the market Thursday.
China is a large importer of U.S. cotton, and industry observers expect the trend to continue. According to USDA figures, since the start of the 2003-04 marketing year China has bought 4.09 million bales of U.S. cotton compared with 1.02 million bales at the same time one year ago. Continuing the recent trend, China again was the top buyer of U.S. cotton in USDA’s latest weekly export sales report.
USDA reported net export sales of U.S. cotton totaled 198,800 bales in the week ended Feb. 19, a 65 percent decrease from the previous week’s sales and 51 percent lower than the five-year average. The major buyer for the week was China with smaller quantities sold to Turkey, Indonesia, and Hong Kong.
Several sources said the report fell below analysts’ expectations of 300,000 to 500,000 bales of cotton while others said the sales figure seemed to be in line with expectations.
Export shipments of 271,800 bales for the same period were 5 percent less than the previous week and 6 percent lower than the four-week average. Primary destinations included China, Mexico and Turkey. Some analysts believe export shipments need to be higher to reach USDA’s goal for the marketing year.
“The sales figures look great, but the problem is shipping the cotton that we’ve sold,” one analyst commented. “The Step 2 certificate is not in place now, and it could lead to a hold in shipments,” he added.
The Step 2 program now is in its second week of positive calculations. In order to be re-established, the Step 2 program requires four consecutive weeks of positive calculations. If Step 2 is re-established, export shipments likely will accelerate.
On the spot cotton scene, online sales by Texas, Oklahoma and Kansas producers in the five trading days ended Feb. 26 totaled 41,826 bales, more than six times the previous week’s sales of 6,434 bales. Prices received by producers selling their cotton online ranged from 61.91 to 63.95 cents per pound versus the prior week’s 57.68 to 60.74 cents per pound range. The large sales figure for the week was due in part to the market surge on Feb. 26 which boosted online sales to 24,049 bales for the day.
In other news, meteorologists now say rainfall totals are up this year in areas of West Texas where farmers have been in the midst of a nearly decade long drought that has cost billions of dollars in lost agriculture revenues. According to the National Weather Service in Lubbock, the city and its surrounding area is 1.76 inches above its normal of 1.15 inches for both January and February.
The region has been in a drought for at least eight years, the Texas Department of Agriculture said. During the first four of those years, the state lost $5.5 billion in agriculture revenues, a department spokeswoman said. Figures for the more recent years haven’t been compiled yet, she added.
The increase in rainfall will be beneficial for the region’s farmers. Cotton growers in West Texas who plant fields in late April or early May have had to pre-water their fields due to the drought in recent years. With the recent precipitation, however, fields may need less pre-planting water. Of course, additional rainfall would be welcome.
“If we don’t get natural rainfall to give us a solid moisture profile in the soil, farmers will have to spend money on expensive irrigation before they are able to plant,” one area observer noted. “Hopefully, we’ll get enough rain over the entire season to keep irrigation to a minimum and help cotton producers increase their bottom line."