Demand, Mother Nature Drive Prices
August 29, 2011 By Dr. O. A. Cleveland
Professor Emeritus, Mississippi State University
For Bayer CropScience
Cotton futures were back and forth all last week, but closed on an up day on Friday. Yet, the nearby December ICE contract lost about 260 points on the week.
The 95- to 108-cent trading range remains intact and the market will likely continue to work that area without any opportunity to push higher until either more bullish demand news surfaces or the fears of Mother Nature’s raft set upon the crop. A combination of both surfaced at week’s end as mills appear to be more agreeable to buying at current levels. Additionally, earlier rumors that the Brazilian crop is not as big as expected have become a fact. The market is now attempting to get a better gauge to measure that crop. Nevertheless, any breakout either below or above the current trading range will likely be no more than 10 to 12 cents.
Mills across Asia and the Subcontinent signaled this week that demand had marginally improved. They indicated that supplies of yarn stocks had been worked lower, but added that sales inquiries had noticeably increased. Too, as noted the past several weeks, positive events regarding demand have circled the market. China continues to be in the market to replenish its reserves — and will be for some time. Also mentioned last week was the big increase in on call sales. In-country prices in both India and China have stabilized to the point that mills, seeing a small increase in demand are being forced to meet the merchant asking price.
Weather concerns are facing the U.S. eastern crop over the weekend, but in the absence of wide spread flooding or plant lodging the U.S. bound hurricane could prove beneficial. Boll opening in the Southeast has not progressed to the point that rain would create much quality damage or yield loss. Yet, dryland cotton in the Mid-South is in danger of going backwards in the absence of moisture.
The Indian crop is facing increased monsoonal moisture which is unwelcome at this time. Additionally, the Chinese crop has begun to suggest it will not be as large as earlier projected.
Yet, do not be mistaken. There is no bull bandwagon on which to jump …with one possible exception: It is becoming more likely that world cotton plantings in 2012 will be down. With that, the stage is already being set for increased cotton prices for the 2012/13 season. U.S. plantings could possibly be marginally lower, but not likely. Indian plantings could also be marginally lower. However, the more pronounced reduction in plantings will be in Brazil, China, Pakistan and Australia. Should world stocks be as much as two million bales lower than currently projected by USDA, then U.S. prices should be significant enough to hold the increased planting gained in 2011. Yet, the cotton oilseed/grain price ratios would likely encourage less cotton plantings outside the U.S.
The December futures price is not really going anywhere very fast. However, the market will remain very fresh to rumors. “Hold On to What You Got.”
Editor’s note: There will not be a newsletter from Dr. Cleveland the week of September 5, 2011.
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