Cleveland: Eyeing Support Levels for 2013
December 4, 2012 With the December contract now in its delivery period, the March New York ICE contract eased up on the week reflecting the strong export demand for immediate needs. The weekly settlement was 72.65, basis the March contract. The December expiry appears to be ending its run in a very quiet and orderly manner. Certificated stocks, albeit historically low, are well more than adequate and should prove to be so throughout the expiration of all the old crop contract months, that is, through the July expiration.
Having now essentially moved beyond the Northern Hemisphere’s harvesting season, one should think that the contract lows have already been made for the 2012 crop and that 69-72 cent range will provide absolute price support as the market begins its transition from the 2012 crop to the 2013 crop.
Export sales, especially to China, continue to provide a “bonus” to prior forecast of USDA export numbers. The positive economic growth information we have preached for five-to-six months now is finally showing up in terms of “cotton demand,” both in the international market as well as here in the U.S.
Net Upland sales of 300,300 running bales for the 2012/2013 marketing year were reported this week. While down from the prior week, these weekly sales were 6 percent above the monthly average. Increases were reported for China (83,300 RB), Mexico (63,100 RB), Turkey (54,900 RB), Pakistan (35,900 RB), South Korea (10,200 RB), and Peru (8,500 RB). Net sales of 14,300 RB for delivery in the 2013/2014 marketing year were also registered.
Weekly export shipments of 126,900 RB were up 9 percent from the prior four week average. The primary destinations were China (67,800 RB), Turkey (10,900 RB), Mexico (9,400 RB), and Vietnam (6,000 RB). Net Pima sales of 10,600 RB were reported for the 2012/2013 marketing year. Pima exports of 15,300 RB were primarily to China (8,300 RB), India (3,000 RB), Bangladesh (1,700 RB), and Taiwan (1,400 RB).
Current prices have proven to be a boon for export sales and cotton demand. Retail sales during the Thanksgiving week also far surpassed expectations; simply continuing a winning streak begun by the consumer several months ago. Exports should continue strong next week as the market spent most of this week between 71 and 73 cents. Prices above the 72.50-73 cent mark represent the threshold for declining U.S. export sales to China as locally grown Chinese cotton becomes competitive to their own textile industry at the level. Yet, any price below that level makes it clearly feasible for Chinese mills to increase imports of U.S. cotton, even being required to pay the 40 percent quota tax. Thus, look for the upcoming USDA December world supply demand report to reflect a bit higher level of U.S. exports and a slightly lower U.S. carryover. Likewise, I expect USDA to also lower its estimate of world carryover.
The 69-78 cent trading range remains in place and prices will be hard pressed to move outside this nine cent range. The market looks as if it wants to try another run to 75 cents and above, but for now the 74 cent level will probably keep a lid on prices. The bigger fireworks will wait for 2013, now just a month away. Nevertheless, cotton at 70 cents remains too cheap to linger.
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