July 21, 2005

Cotton futures prices at the New York Board of Trade fell Tuesday to five-month lows on fund selling in moderate volume amid the backdrop of a strong U.S. dollar and crumbling technicals, sources said. However, the market recovered Thursday on news of stronger-than-expected weekly export sales and reports that China had revalued its currency, the Yuan.

Net export sales of 271,700 bales in the week ended July 14 were 90 percent more than the prior week and 19 percent more than the four-week average. China was the major buyer with smaller quantities to Mexico, Turkey, and Indonesia. Net sales of 129,300 bales for delivery in the 2005-06 marketing year were primarily for China, Mexico and South Korea.

Export shipments of 365,600 bales were seven percent more than the previous week’s sales and 26 percent more than the four-week average. Primary destinations included China, Mexico, Turkey, Indonesia, and South Korea.

In the spot cotton market, online trading by producers in Texas, Oklahoma and Kansas in the week ended July 21 totaled 920 bales, almost unchanged from the previous week when 924 bales were traded. Average prices received by producers in the most recent week ranged from 39.42 to 44.00 cents per pound compared to 40.44 to 43.62 cents per pound the previous week.

News that China no longer will attach the Yuan’s value to the U.S. dollar and, instead, tie it to a basket of currencies also was supportive to the cotton market. The revaluation was viewed as a first step to further revaluations. The People’s Bank of China said the Yuan’s exchange rate versus the U.S. dollar had been changed to 8.11 Yuan compared with the 8.28 level it has been pegged to for more than a decade. The news was considered bullish for cotton because it should make U.S. cotton roughly three percent cheaper for China to purchase, some analysts said.

China’s cotton production shortfall for the 2005-06 marketing year is expected to be larger than in 2004-05, China’s Ministry of Agriculture said this week in its July cotton market monitoring report. The forecast is similar to one made by the ministry in its April report when representatives said lower prices at the end of 2004 led to expectations of a 10 percent reduction in China’s 2005 cotton acreage.

Meanwhile, Hurricane Emily, a category 3 storm, made landfall on July 20 along the northeastern coast of Mexico and about 80 miles south of Brownsville, Texas. Sustained winds of around 125 miles per hour were recorded as the storm system moved inland. The storm affected South Texas with winds and rain, although crop-damaging winds did not materialize. Any potential crop damage in the Rio Grande Valley area was expected to come from the rain as cotton bolls were open and ready for harvest when Emily hit.

In fact, most of the dryland crop already had been defoliated and picking was progressing at a rapid pace. Ginning has begun, and slightly better than expected yields were reported early in the week. Module haulers were working long hours before the storm, transporting seed cotton from the fields to the gins. Harvest aid chemicals had not yet been applied to many irrigated fields, and the foliage might have offered some protection to open bolls. Although it is too early to assess actual damages to the crop in the Rio Grande Valley, a reduction in quality and yield is expected.