December 4, 2008

On the Intercontinental Exchange (ICE), cotton futures prices plunged lower Thursday drawing influence from weak outside markets and another round of bearish economic news.

The global recessionary conditions continue to maintain a death grip on everything economic, analysts said. History shows that economic recessions typically last from 10 to 12 months with the longest on record at 16 months. This week it was revealed that the United States was officially in a recession and has, in fact, been in one since last December. Therefore, when we enter into the second quarter of 2009, we will have matched the longest period of economic contraction ever seen, sources report.

“This doesn’t mean that the economic recovery will happen right on schedule, but history does offer a milepost against which progress, or lack thereof, can be measured,” a market observer explained.

Meanwhile, the International Cotton Advisory Committee (ICAC) released its monthly figures this week. Current-crop world production was reduced by 800,000 bales, spread across several countries, and mill use fell by 2.6 million bales; 1.8 million in China alone.

World exports were reduced 2.4 million bales with the U.S. figure falling 800,000 bales. ICAC now projects U.S. shipments at 11.9 million compared to USDA’s estimated 13.0 million bales. Global ending stocks were increased by 2.0 million bales.

“Expectations for lower world economic growth in 2009, as well as the tightening availability of credit for spinning mills are cutting into global cotton consumption,” an ICAC representative said.

The committee’s figures were largely ignored by the market as traders now have shifted their attention to the next series of supply/demand reports to be published by USDA on Dec. 11.

In other news, net export sales of 89,500 bales for the week ended Nov. 27 were down 47 percent from the previous week and 52 percent from the four-week average. Major buyers were Turkey, China, Mexico, and Vietnam.

“As expected, USDA’s export sales report was abysmal,” one trader said. “With respect to cotton export sales, while not much was expected, not much showed up. In fact, new sales were the smallest in five weeks”

However, the export shipment total hit an impressive 256,700 bales, 28 percent better than the previous week and back in rhythm to meet USDA’s current annual projection. Observers say from this point forward, 8.1 million bales of cotton will need to be shipped, approximately the same amount to be shipped at this point last year.

Closer to home, spot cotton sales were lower as producers in Texas, Oklahoma, and Kansas sold 9,485 bales online in the week ended Dec. 4 compared to 11,143 bales sold in the Thanksgiving holiday-shortened week. Average prices received by producers ranged from 38.60 to 43.83 cents per pound.