Cleveland: Cotton’s Price Momentum Slows

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Cotton’s upward price momentum was challenged this week as the market cleared option expiry of the March futures contract. The midweek price stumble of more than 200 points led to a slip in the New York march to 80 cents before recovering in an attempt to close the week above 81 cents. The market does retain its bullish mode, but is somewhat weakened. Nevertheless, this price consolidation was both an expected and welcomed by the market as it sets up a new base from which to build another challenge of the 84 cent level, basis the nearby May contract.

The same fundamental information that led to the current six month price advance is still in force and will continue to exert upward momentum on prices. Just as the 77-78 cent price was too strong to penetrate a few months ago, the 84 cent mark has become the new price target that must be scaled.

The release of the NCC’s 2013 planting intentions report detailed that U.S. cotton growers intend to plant 9.01 million acres, a 27 percent drop from last year. While not a surprise, but still noteworthy, was that Mississippi cotton growers intend to plant only 200,000 acres this year, a near 60 percent drop from 2012 plantings.  Texas will again plant over 55 percent of the U.S. acreage. The NCC estimated 2013 production at only 12.8 million bales, a number that will shrink further if the three year drought continues to persist over the Southwest, as many weather forecasters predict. 

Despite the record level of world stocks, 82 million bales, a U.S. crop as small as 12.8 million bales does provide upward price momentum. With China putting the big lock on its cotton warehouse doors, the availability of cotton outside China has become the key fundamental in the cotton market. The stocks-to-use ratio of cotton outside China has fallen to a low of 37 percent; thus, projecting prices in the very high 80s to low 90s. That is a bit of a bite just too large for me to take. The 86-88 cent mark is the limit of my bullishness given the course we are presently covering.

High prices have made little headway in reducing export sales. Net U.S. sales of Upland for the week ending February 17, 2013 were a staggering 367,200 RB with Pima sales of 25,300 RB. The untold story behind the Upland sales was that some 171,500 RB of those sales were for marketing year 2013/14, an indication that some mills are protecting against soaring prices in 2014, and rightfully so.

 

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