Cleveland: Cotton Wraps Up a Bearish Week

Just when we thought the bearish news had already worked its way through the market this week comes along and prices were down, down, down. The exception was Friday’s activity, but only because the bears (shorts) began taking profits via buying their previous longs back. Thus, in market terms, Friday was nothing more than a short covering rally. The market has returned to its support area and will fight to hold the 90 cent level in December. Yet, the worst case scenario remains a move down to 85 cents, basis December.

The week did end with the mildest of bullish news as export sales were well above expectations and speakers at the annual USDA Agricultural Outlook Conference did not add any new bearish news to the cotton ring. In fact, the conference reports were slightly more positive than the mid-January based February NCC grower intentions report. The weekly export sales report for the week ending February 16 included a net of 183,900 RB for both marketing years for Upland cotton. Net Pima sales were 17,300 RB for 2011/12 delivery. The full report can be viewed at http://www.fas.usda.gov/export-sales/cottfax.htm.

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USDA now estimates the domestic cotton acreage for 2012 will be 13.2 million acres, or 400,000 acres below the NCC’s grower intentions report. Some analysts speculate that planted acreage will likely fall closer to 13.0 million. Thus, most analysts have near identical forecasts for 2012 planted acreage. USDA projected U.S. production at 17.0 million bales. World production was forecast at 118.5 million bales, some 3.5 percent lower than the 2011 production. World consumption was forecast to increase 4.5 percent, climbing to 114.5 million bales. Thus, USDA forecasts that world ending stocks for 2012-13 will climb to 64.8 million bales. This level of stocks will continue to pressure the December contract, making it most difficult for the market to move above the dollar mark. Such a move is incumbent upon the continued drought in Texas and a further reduction in world plantings. Yet, it is also likely that with lower prices now in the market, consumer demand will increase. Look for world carryover to be closer to 60 million than the forecast’s 64.8 million bales. The USDA outlook presentations can be viewed at: http://www.usda.gov/oce/forum/2012_Speeches/CottonOutlook2012.pdf.

The current run of lower prices will likely reduce plantings and make way for a bit higher price as the market moves into the summer. However, be aware that USDA forecast the 2012 crop’s average farm price to be 80 cents. That portends the “average” December futures price to be between 88 and 98 cents.

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