October 30, 2008

Volatility characterized the market this week as trading on the Intercontinental Exchange (ICE) searched for a clear direction, but cotton futures prices settled just off fresh contract lows Thursday as outside bearishness and poor weekly export sales implied weak demand.

USDA’s export sales report showed frail figures, casting an even more bearish tone to demand potential than already was evident from outside factors. At 57,100 bales, net U.S. export sales for the week ended Oct. 23 were 82 percent less than the previous week and 79 percent lower than the four-week average. Purchases by Mexico, Indonesia, Turkey, and Colombia were partially offset by cancellations by China and Bangladesh. Net sales of 500 bales for delivery in 2009-10 were for Indonesia.

The bright spot in USDA’s report was that export shipments of 249,100 bales were up 13 percent from the previous week and six percent higher than the four-week average. Primary destinations were China, Indonesia, and Turkey.

Spot cotton sales also were lower as producers in Texas, Oklahoma, and Kansas sold only 86 bales online in the week ended Oct. 30 compared to 230 bales sold the previous week.

The anxiety of the global economic crisis and its effect on consumer demand for textile and apparel products has caused a slow-down in mill consumption and thus a slow-down in cotton purchases.

“Today’s consumers are more concerned about personal wealth, both long and short-term, as they try to preserve their home, automobile, and their family’s health,” a trader explained. “New clothes, towels, sheets, and other consumer goods, both durable and non-durable, will suffer a measurable drop in demand until consumers begin to feel financially safe and secure once again.”

Most traders believe the influence of cotton fundamentals eventually will seep back into the market, though traders remain wary of the broader economic situation.

“Uncertainty will continue as cotton’s underlying trading factor backed up by credit concerns as they relate to market flow,” a market observer said. “The direction of the U.S. dollar also will guide trade as will the macroeconomic commodity environment in terms of the demand for goods. Additionally, traders will look at the state of the U.S. cotton harvest which is currently underway,” he concluded.

In the meantime, sunny and clear weather continued across West Texas as low temperatures pulled off the freezing mark earlier in the week. Cotton plants continued to drop leaves from the previous killing frost. However, harvest-aid chemicals still will be needed in fields where a hard freeze has yet to occur. The return of warmer weather allowed growers to apply defoliants as needed. Harvesting was slowly expanding, and if good weather conditions hold, widespread work is expected soon.

Picking was moving ahead at a rapid pace across most of the South. Work was at or ahead of the normal pace in all states except Mississippi. However, freezing temperatures moved out of most of the Mississippi Delta this week where field work was moving forward and nearing completion. The majority of cotton in Southern Mississippi was off the stalk and harvesting was moving ahead swiftly in the north Delta where more than 50 percent of the crop was out of the field.

Pickers were rolling in the Southeast, and producers made great progress in getting the crop harvested in the past week. Work, though, remained approximately a week or more behind schedule for the time of year. In the Far West, many fields had been defoliated and picking was expanding. Nevertheless, work continued to lag behind schedule in California. Bolls at the top of plants have benefited from the good fall weather, but some farmers have been slightly disappointed with average yields.