Cleveland: Cotton Trades in Tighter Range

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Cotton prices were more range-bound last week than in the past several weeks as the Monday through Thursday trading range was limited to a very tight 198 points, from a low of 72.43 to a high of 74.41 cents. Too, the market enjoyed four up days and only one down day. Even at that, decent export business appeared to have been accomplished when the March contract traded below 73.50 cents. Yet, mill and export demand seemed to all but totally disappear with the Thursday trading above 74.00 cents, thus bringing prices back near the 73.50 cent level.
Demand has, without question, improved and has been building for nearly six months now. Even with the paid Washington actors playing Russian Roulette with the U.S. and global economy, for nothing more than personal popularity, this increase in demand is extremely broad based and should help maintain the wider 69-77 cent trading range into January, and very possibly longer, despite the 80 million-plus bale world stock level.
Week ending export sales announced by USDA on Thursday were a net of 415,700 bales of Upland and Pima sales of 27,300 bales. Sales were across some 19 countries with Chinese mills continuing to purchase non-quota cotton and paying the Chinese government a 40 percent import fee. Other Asian countries were primary buyers. Upland sales to China were 254,600 bales with sales of 27,300 bales of Pima.
While not this week, both Brazil and India have been in the mix over the past few weeks indicating that the world demand for premium quality is increasing and that mills are concerned that quality cotton will disappear. Better quality cotton will see its cash basis improve as time passes. Demand for exports has increased to the point that Pima will become in short supply.
China’s policy not only to hold its strategic reserve off the market, but in fact, to continue building that reserve, has resulted in a near iron floor just under the 70 cent mark. Also, it has led to increased U.S. exports when the New York ICE futures contract trades below 73 cents. It is believed that the Chinese will be very slow and deliberate in adjusting their policy. This is why many feel that the current trading range will continue into January-February of 2013.

Cleveland is a Professor Emeritus, Department of Agricultural Economics, Mississippi State University.
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