Will Next Year Finally Be the “Next Year” We’ve Been Talking About?

Don’t look now, but there’s a little bit of a rally going on in the cotton market. The NYBOT December ’09 contract has gained over 11 cents from its November 21, 2008, life-of-contract low of 45.25. At the close Monday, it stood at 56.50. That’s up 25%, but it’ still a ways from the benchmark of 65 cents that seems to drive cotton acreage. On the other hand, you can’t get from 45.25 to 65 without going through 56.50.

I was working on something for our sister publication Cotton International magazine and came across some amazingly bullish numbers. Unfortunately the bull is not going to break out of the barn in time to positively affect acreage this year.

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Although China’s cotton imports are currently dropping, a report by Bloomberg.com predicted that by August, an explosion in imports could occur. “Explosion” is my word, and I’m not using it lightly.

China’s domestic production is already falling and some projections have acreage dropping by another 30% this year. Now mill demand is starting to show signs of rebound, and as it does, China is going to have to come to the market to find cotton. Bloomberg goes so far as to say that China’s imports could increase from 1.62 million metric tons this marketing year to 3 million in the next. I would say an increase in imports of 85% by the world’s largest cotton-importing country qualifies as an explosion.

The Bloomberg report predicted that U.S. exports could surge by 51% to 1.6 million tons.

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A metric ton is 2,240 pounds. A bale of U.S. cotton is 480 pounds. China importing 3 million tons and the U.S. exporting 1.6 million tons is moving a lot of cotton around.

Then throw in this: India is playing around with the Rupee, devaluing it at the moment to make Indian textiles more competitive on the world market. India is has a sizable amount of cotton in inventory, I’m told it’s stored outdoors and the monsoon season is closing in. And therein lies the wild card: What happens to those cotton stocks between now and the start of the monsoon season in June will bear watching.

Who knows what the world economic situation will be in August, but there are signs of life. If the planets align and all of these positive factors fall into place, it’s pretty obvious what the cotton-supply pipeline will look like. We’ve been saying, “yeah, but wait until next year,” for a long, long time. Maybe 2010 finally is next year.

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