Cleveland: Cotton Forges Ahead Despite Dull Trading
October 9, 2012 
Cotton forged its way through another week of dull trading as market attempts to push below the 71 cent support failed to generate additional bearish momentum.
Most suggest that price pressure is coming from the Northern Hemisphere harvest which is underway around the globe. Certainly it is routine for the harvest season to pressure prices. Yet, given the bearish tone of fundamentalists one would have to believe that the December contract is headed to 65 cents or below. Yet, export sales have become very active now that prices have spent a few weeks in the low
70s. The previous trading range above 74 cents has given way to the longer term and wider price range of 71 to 77 cents. The trading range should hold. However, it is important that the market generally hold the 71 cent level. Yet, while demand is softer than expected, it is still strong on dips into the low 70s as evidenced by export sales.
Weekly export sales of Upland cotton for the week ending 9/27/2012 were a net 238,400 RB with China leading the way with 114,800 bales. Turkey, Vietnam and Mexico followed. While China is attempting to slow its export purchases, the price discount of U.S. cotton compared to domestic Chinese growths was too great to be ignored by the Chines textile industry. Too, while all the talk is that Chinese mills are reducing their production, and it is true, it is equally true that other Asian countries are increasing their consumption by a nearly equal or greater amount.
The unseen, and seemingly almost unmentioned in the cotton industry, is that the other Asian / Subcontinent countries, such as Vietnam, Bangladesh, Cambodia, Laos and others are increasing their textile operations. Actually, it is generally Chinese investment in those countries that is building capacity as those countries are now the low cost of production markets, not China. Thus, compared to three months ago, global textile consumption is increasing slightly. Too, Turkey remains a strong export market for the U.S. as Turkish cotton production has trended lower since 2004.
Likewise, export shipments remain on pace to meet the USDA forecast and on pace with the historical pattern. Whereas the prior two years have been met with serious defaults by importers, such defaults are not on the horizon for the 2012/13 marketing season. Weekly shipments for the same week ending 9/27/2012 were 184,600 RB of Upland and 18,100 RB of Pima.
As noted the market has been quite docile the past few weeks, although prices did experience three consecutive up days last week. Late September’s moisture over the Mid-South and Southeast likely caused quality losses as well as a yield reduction.
The shortage of quality cotton suggests the market will face more volatility in the days ahead as the market scrambles to locate high grades. Look for the USDA supply demand report this week to be a bit friendly.
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