Cleveland: Strong U.S. Exports Bolster Cotton Market

Cotton prices eased higher near week’s end as Thursday’s rally brought the nearby March back above 86 cents.  The week was highlighted by strong U.S. export sales, the firming of Indian prices, ideas that the US crop is not as large as forecast by USDA and increased talk of weather problems facing the 2014 crop. The expected volatility returned somewhat to the market, and don’t be surprised to see more and more three digit daily moves. The mill on-call sales remain well ahead of on-call purchases, and mill fixations this week prevented an attempt by the market to force prices below 84 cents. That support should continue throughout the spring trading months.

Export sales tallied 179,800 RB of Upland on the week for the current marketing year and another 35,600 RB for the 2014/15 season. Export sales during January were near 1.5 million bales, well above expectations. Sales of cotton for both this season and next, including Pima, totalled near 1.75 million bales. Too, a large portion of the sales appeared to be on- call, thus adding to the necessity for mills to buy futures during the coming months either on the March, May or July contracts to fix the price of the respective sales.  Equally impressive as the volume of sales during January was the wide range of countries looking to buy cotton from the U.S. This distribution underscores the need for machine picked cotton desired by mills and the fact that the availability of cotton for exports (outside China) is extremely tight now that both Brazilian and Greek supplies are essentially gone. There remains high quality West African supplies, but the smaller than expected Indian crop, the surprising strength of Turkish demand, and the recent surge of demand from Indonesia, the demand for U.S. supplies is firmly embedded as one of the primary factors supporting the market.

In fact, while I have been lobbying USDA for months to increase its estimate of U.S. exports, it seems a foregone conclusion that the agency will have to in next week’s February supply demand report. Granted, and in defence of USDA, they have been reluctant to reduce U.S. ending stocks below 3.0 million bales, it now becomes necessary for them to reflect the even tighter availability of quality U.S. cotton available for export. Export sales and shipments have now reached nearly 9.2 million bales 480 pound bales. This is also supported by the aforementioned idea that the total U.S. crop is smaller than currently forecast (crop size is not expected to be lowered in next week’s report).

The National Cotton Council will release its plantings survey, traditionally the first objective survey of the year. My long time estimate has been 11.1 million acres while the Beltwide estimate was about 10.8 million acres. I could be 100,000 acres low; but nevertheless, this will be the first increase in plantings in three years.

The 84 cent level will likely continue as support while the 88 cent mark holds the resistance, but with a bias higher. Yet, for now, mill buying will still stagnate at 87-88 cents, but fixations will be strong below 84 cents.

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