Cleveland: Finally, Some (Small) Price Relief

By Jim.Robinson|June 5, 2012

Finally, a week with higher prices. While the daily price increases were minimal, the market, nevertheless, was higher. July made new contract lows last week at 70.38 cents and a new settlement low of 70.91. This reflected a 27 month trading low and likely set up a price consolidation base that will finally halt the month long price decline. Support for the new crop December contract is at the 67 cent level. The market has lost over twenty percent of its value since late April.

Over the last 27 trading sessions, December has settled lower 18 times. The old crop July contract was hit even harder, down 21 times in 27 trading days. December was a “low” 89.30 cents in late April, but had lost 21.50 cents as of the Thursday close last week. Funds were noted as light buyers during the week. This, along with three consecutive days of higher prices, prompted a number of traders to suggest that the bottom was in. One would think that to be the case, that is, in the absence of an excellent growing season worldwide.

The explosion in world stocks, coupled with weaker than expected demand, has led prices lower. World stocks are expected to increase more than 50 percent over the combined two year period from 2010-11 to 2012-13, increasing to nearly 75 million bales by the end of the 2012-13 marketing season.

The lower prices have boosted export sales. The weekly sales report indicated 2011-12 and 2012-13 marketing year sales of Upland totaled 310,000 RB last week. China was the primary buyer, taking 85,500 RB for the current year and 226,700 RB for 2012-13.

The outside markets continue their significant impact in the cotton market. After promising so much for the past nine months, economic reports have soured. Released today, the monthly jobs report indicated that unemployment rose, yes it actually increased, to 8.2 percent. The U.S. dollar (USD), trading inversely with cotton futures, has increased. The U.S. dollar has settled higher for four consecutive days and that now makes the 22^nd higher settlement in the last 25 trading sessions. Note, the increase in the value of the USD has been near identical to the decline in cotton. Thus, the reason a discussion of the macro-economy, Europe and Asia, as well as others, is necessary in today’s global economy. In that regard, oil continues to lose value as the dysfunctional world economy begins to slow. Oil is the primary commodity that drives the global economic production engine. Its price decline signals a slowdown in economic activity. Too, as the price of oil declines, the chemical fibers that compete with cotton for a share of the textile market remain very competitive with cotton. There will be no looking through rose colored glasses for some 24 months.