January 14, 2010

The cotton market awaited Tuesday’s release of USDA’s monthly supply/demand report, but the resulting lack of interesting data drove cotton futures on the Intercontinental Exchange to touch the lowest levels in eight weeks.

Analysts said the biggest surprise was the lack of surprise in USDA’s January report. Cotton futures pushed lower in early dealings and added to those losses after the release of the data. The department only marginally refigured its outlook for the cotton market, notably by lowering its U.S. cotton production figure and tightening the estimate for available domestic and world supplies.

USDA’s 2009/10 U.S. cotton estimate included slight decreases in U.S. production and ending stocks compared with last month. Production was lowered by 191,000 bales as reductions in the Southeast, Delta, and Southwest states were partially offset by increases in the Far West.

In the report, the department’s 2009/10 Kansas cotton production estimate was raised 3,000 bales to total 51,000 bales. Oklahoma producers now are expected to produce 330,000 bales, a 10,000 bale reduction from USDA’s December report, while the January estimate of 4.9 million bales in Texas was a 100,000 bale decrease from last month’s data.

Additionally, domestic mill use and U.S. exports were unchanged while the ending stocks forecast was reduced to 4.3 million bales or 30 percent of total use.

World 2009/10 cotton estimates were virtually unchanged from last month. Increases in production for China and Brazil were offset by decreases for India, the United States, Australia, and others. World consumption was lowered marginally due to reductions for Japan and Russia. Minor adjustments are made to world trade. The world ending stocks forecast of 51.7 million bales reflected a 15 percent decrease from the beginning level. In other news, USDA reported during the week ended Jan. 7 net upland export sales for the current season reached their highest total of the season at 437,400 bales. Sales to China accounted for over half of the week’s total sales with Turkey and Vietnam rounding out the list of top three buyers. There were no sales reported for delivery in 2010/11.

“We now are approximately 43 percent into the marketing year, yet we have sold 63 percent of this year’s export forecast,” a trader said. “As it stands right now, the U.S. needs to average only 188,411 bales per week to meet the current USDA export estimate of 11 million bales.”

Actual export shipments of 181,200 bales were primarily to China, Turkey, Vietnam, and Mexico. The figure was up 81 percent from the previous week and 57 percent from the four-week average.

“As expected, the export report was healthy; above reasonable ideas but below most bullish expectations,” an analyst assessed. “The data supports the idea that cotton consumption is robust and continues to climb. The only effect lower prices are having is to allow mill buyers a temporary opportunity to secure raw materials for more than the current cover of around six weeks forward,” he explained.

Meanwhile, sales were lower on the spot cotton market as growers in Texas, Oklahoma, and Kansas sold 13,141 bales online in the week ended Jan. 14 compared to the previous week when 29,379 bales were traded. Prices received by producers ranged from 61.68 to 65.30 cents per pound versus 60.63 to 67.19 cents per pound one week before.