August 20, 2009

After a week of lackluster trading, cotton futures on the International Cotton Exchange (ICE) settled weaker Thursday in thin, sideways trade dominated by speculative fund activity.

The scenario came as no surprise to cotton observers as analysts expect cotton to continue looking for direction in quiet summer trade ahead of the 2009 U.S. crop harvest. Cotton is trading on technical and general economic cues under speculative influence as the market is quiet while the 2009-10 crop develops.

“The cotton market is just marking time until we see how the harvest comes in,” a trader said. According to USDA’s drought monitor map for the week ended Aug. 18, conditions were categorized as abnormally dry to dry throughout the south while an extreme to exceptional drought prevails in South Texas. Although average yields have been reported from irrigated fields in the Texas Rio Grande Valley, dryland production has been disappointing. Due to the drought, a vast majority of non-irrigated stands in South Texas already have been plowed under, and some gins have stated they will not receive any cotton this year.

Meanwhile, the West Texas crop is developing satisfactorily under fairly favorable conditions. Soil moisture levels across the High and Rolling Plains were rated “normal,” and heavy fruit loads have been reported in many irrigated fields. The dryland crop, though, remains behind schedule, and as stands enter the heavy fruiting stage water demands will rise. Therefore, rains would be beneficial in the next few weeks to ensure a uniform crop. An open fall also will be required in order for bolls at the top of the plants to fully mature before the first freeze.

Nationally, most of the U.S. cotton crop is in good condition. USDA’s crop progress and condition report for the week ended Aug. 16 showed the U.S. crop is promising with 53 percent of the crop rated in good to excellent condition versus 50 percent the previous week. The states showing improvement were Arizona, Arkansas, Georgia, Missouri, North Carolina, Texas, and Virginia.

Of the major crops in the United States, only cotton posted an improvement in its condition last week. The weather has been excellent in almost every respect, and most analysts are looking for higher yields than USDA pegged in its latest report.

“As history tells us, the crop can certainly go in either direction at this time of year,” a market observer said. “I don’t know anyone who thinks we will wind up with less than the 13.2 million U.S. bales estimated by USDA, and with the right odds and some decent weather, 14 million U.S. bales in 2009-10 isn’t a bad bet. However, I suspect that consumption will be the key figure this season, and I hope USDA isn’t guilty of optimism on that score,” he concluded.

In other news, traders also are watching the lackluster Indian monsoon, which is thought to be hindering cotton production potential. As the second largest cotton producer in the world, India competes with the United States for China’s cotton import market. Generating cotton sales to China is incredibly important as the nation is the world’s top cotton and textile producer. If the cotton crop in India is smaller than expected, there is a chance for more U.S exports in the upcoming year.

Meanwhile, USDA reported net export sales of U.S. cotton totaled 32,300 bales in the week ended Aug. 13. China, Taiwan, and South Korea were the major buyers for the week. Export shipments of 127,600 bales were primarily to China, Mexico, and Turkey.

Sales in the spot cotton market were considerably lower in the week ended Aug. 20 as producers in Texas, Oklahoma, and Kansas sold just 253 bales online compared to 4,316 bales the previous week. The average price received by producers was 52.33 cents per pound.