January 28, 2010

Cotton Market Weekly January 28, 2010 After a week of lower trading on the Intercontinental Exchange (ICE), speculative funds sold cotton futures Thursday to push the market to three-month lows despite indications of strong demand for physical cotton.

“Perhaps it is no surprise by now, but cotton finished lower again even though we had a marketing year high export sales report,” a trader said. “Prices attempted to rally following the report but soon ran out of steam and eventually fell to new lows yet again.”

According to market observers, ICE cotton futures have been in correction for most of January following a late-2009 rally. Lower-than-expected production and tight supplies amid growing world demand boosted prices on ideas of a world economic recovery. A stronger economy helps consumers restock the worn-out textiles they neglect to replenish during a recessionary period.

However, this week’s renewed concerns that China’s moves to rein in its strong economy sent the safe-haven dollar higher on ideas the world economic recovery would suffer. Traders sold commodities futures which become more costly in other currencies as the U.S. dollar firmed.

USDA reported net export sales for delivery in 2009-10 reached a marketing year high in the week ended Jan. 21. At 487,500 bales, the figure was 52 percent more than the previous week and 49 percent more than the four-week average. Primary buyers were China, Turkey, and Vietnam. Net sales of 5,300 bales for delivery in 2010-11 were for Vietnam.

Export shipments of 149,500 bales were down 24 percent from the previous week but just one percent lower than the four-week average. Featured destinations included China, Turkey, Mexico, and Thailand.

Meanwhile, sales were lower on the spot cotton market as growers in Texas, Oklahoma, and Kansas sold 5,359 bales online in the week ended Jan. 28 compared to the previous week when 6,521 bales were traded. Prices received by producers ranged from 58.64 to 59.67 cents per pound versus 57.90 to 62.40 cents per pound one week before.

In other news, the government reported domestic cotton consumption in December 2009 was an adjusted annualized rate of 3.5 million bales which compares to 3.11 million for the same period last year. Many analysts feel the U.S. consumption number is almost inconsequential as it accounts for such a small percentage of the total global demand. However, it is important to recognize trends, and the existing trend is for U.S. mills to use more cotton.

Most market observers still are optimistic that global demand for U.S. cotton should persist throughout 2010. Long term, the industry believes the growth in global cotton demand eventually will out-strip the growth in cotton supply. Cotton cannot be easily replaced since synthetic fiber production capacity takes time to build. As the “green revolution” continues, most consumers have begun to prefer natural fibers. Therefore, cotton demand in 2010 should remain stable as mills continue to produce cotton fabrics.

As a direct result of the global recession, many textile mills still are losing money. However, world fiber supplies now are low. Although a number of mills have indicated they cannot pay more for cotton than they did in 2009, analysts believe they may have to do so very soon.

“They will not be able to buy cotton at last year’s prices, but there still are profits to be made in the apparel segment,” an observer said. “Mills are accustomed to buying hand-to-mouth, and they will have to buy soon. It’s generally more expensive to shut down an entire textile mill than it is to pay more for cotton.”