April 10, 2008

Cotton futures on the New York Board of Trade finished higher Thursday as cotton, like most other commodities, continued to be inundated by an influx of money from hedge and pension funds, among others. The scenario pushes futures contracts higher but drives cotton buyers to the sidelines.

With technical issues driving the market, fundamental issues are of little interest to cotton traders. In fact, the market essentially ignored the monthly USDA supply/demand report which showed both the U.S. 2007-08 cotton crop and world ending stocks were on the rise.

USDA estimated an increase in U.S. cotton production at 19.4 million bales, up from 19.03 in its March report. One cotton market observer pointed out that the 370,000-bale increase in the department’s U.S. production figure was easily the largest for the month of April in the last 10 years. Traders were not impressed by the fact that most analysts had expected a cut to exports which did not materialize.

Cotton futures prices slipped in early business after the release of USDA’s supply/demand data on Wednesday, but once crude oil prices took off and the metals and grains complex followed suit, fiber contracts staged a rally of their own. Even news of beneficial rain in the key cotton growing state of Texas failed to dampen the market’s climb.

Stormy weather was reported in Texas this week as damaging winds, hail, and locally heavy precipitation were reported in many areas. Cotton producers on the High and Rolling Plains were pleased to see some long-awaited precipitation to boost pre-planting moisture levels.

Meteorologists now say long-range weather forecasts indicate a less-than-favorable rainfall pattern in West Texas during the main May through June cotton planting period. Pre-planting moisture and intermittent rainfall throughout the season is of the utmost importance. Irrigated acreage comprised approximately 52 percent of the planted cotton area on the Texas High Plains, according to 2006-07 data, including several hundred thousand acres of high-yielding subsurface irrigation. However, a sizeable amount of acreage is irrigated with small wells and requires supplemental rainfall for optimum yields.

Meanwhile, analysts said USDA’s first crop progress report of the season did not offer any gems for cotton traders. Seven percent of the crop is estimated to have been planted compared to six percent last year and an average of seven percent for the past five years. At this early point in the cotton season, reports came from only three states, Arizona, California, and Texas.

In other news, USDA reported net export sales of U.S. cotton were more than two times the four-week average as sales reached 483,800 bales in the week ended April 3. China was by far the major buyer with Indonesia, Vietnam, Thailand, and Turkey rounding out the list of top five consumers. Net sales of 1,100 bales for delivery in 2008-09 were for Peru.

Export shipments of 276,500 bales were up 28 percent from the previous week and 29 percent from the four-week average. Primary destinations were China, Turkey, Mexico, and Indonesia.

In the spot cotton market, online trading by producers in Texas, Oklahoma, and Kansas steadily increased as 15,216 bales were sold in the week ended April 10 compared to 11,133 bales the previous week. Average prices received by producers ranged from 60.25 to 63.80 cents per pound versus 57.56 to 61.81 cents per pound one week earlier.