Cleveland: Cotton Market Has a Pleasant Friday the 13th
July 17, 2012 After moving near 73 cents earlier in the week on the second consecutive somewhat friendly monthly USDA supply demand report, cotton futures continue to fight consumption woes. The US Dollar (USD) jumped to multi-year high against the Euro and that took prices lower on Thursday. Yet, when the USD moved lower on Friday cotton prices jumped higher. Too, prices received another boost from the macro economy as China announced its GDP was up 7.6 percent from a year ago. This provided a strong boost to cotton as the news translates to good news for the demand side of the price equation.
Cotton prices are stretching their elbows attempting to burst above the 72-73 cent top of the current trading range, but will have to have successive closes above 75 cents to establish a new range. However, as the elbows contract, so do prices and the market may be setting the stage for a new lower trading range. Cotton fundamentals relative to demand are screaming for lower prices and technical indicators still point to a bearish market. However, the production side of the market is teasing traders as weather concerns continue to be paramount in some major world production locations. Let’s keep adhering to the five cent, 67-72 cent, trading range for now, but there will be increased pressure to attempt a breakout below 67 cents in August if the trading range remains unchanged.
The July USDA supply demand report, released earlier this week, was mildly bullish, but very much in line with expectations. Thus, it created very little excitement. Lower production and ending stocks for the 2012-13 marketing year were the two highlights of the report. World carryover was lowered some 2.1 million bales down to 72.4 million.
Due to continued monsoonal problems USDA reduced Indian production by one million bales. Yet, USDA did increase Indian consumption 250,000 bales to 21.5 million. The U.S. crop was unchanged at 17.0 million bales. U.S. domestic consumption was lowered to 3.4 million bales, down 100,000. Reflecting recent strong shipments and sales USDA raised its estimate of U.S. exports to 12.1 million bales, a 400,000 bale increase. USDA’s estimate for ending stocks was lowered 100,000 bales to 4.8 million.
As has been the situation the past three months USDA has made rather significant adjustments in it estimates for India. This month’s increase in Indian consumption, despite the reduction in production, suggests the Department continues to struggle with world consumption. This is not second guessing, as they are far superior to me, but rather to suggest that Asian and Subcontinent consumption did not drop as low as earlier estimated. This will eventually lead to a further reduction of world stocks, that is, world carryover. As such this sets the stage to help support cotton prices in the 70 cent range.
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