April 10, 2014
A combination of factors seemed to pressure nearby cotton futures contracts at the Intercontinental Exchange (ICE) most of this week. Index funds rolling their positions from May to July, a negative export sales report, and weaker outside markets were mentioned by cotton market analysts.
From Monday through Thursday's ICE session, the May contract lost a combined 338 points, and July lost 238 points. The best day for both contracts was Tuesday when a weaker dollar and stronger outside markets may have been the catalysts that enabled May to settle 117 points higher and July to settle 124 points higher at the close of trading. Conversely, December cotton enjoyed a mostly good week, the exception being Monday's ICE session.
The December contract settled 8 points lower that day at 79.84 cents per pound following weekend news from China regarding its new price support program for cotton farmers. One market analyst calculated the guaranteed price for farmers there to be the equivalent of $1.45 per pound which may lead to more cotton acres this year.
Tuesday was the beginning of a three-day run for December on positive ground. The contract settled 33 points higher at 80.17 cents following an inside trading session. The uptrend continued Wednesday as December gained another 24 points to settle at 80.41 cents, it highest level since Oct. 17, 2013. May, July and October futures contracts pulled back sharply following the release of USDA's monthly supply and demand estimates.
The department reduced its estimate of 2013-14 U.S. cotton production to 12.87 million bales, down 320,000 from the previous month. Likewise, estimated ending stocks were lowered 300,000 bales to 2.5 million which would be the smallest stocks level since 1951, according to one market observer. Estimates for domestic consumption and exports were unchanged.
On the world balance sheet, USDA lowered its estimate of world cotton production by 60,000 bales and raised consumption 240,000 bales. However, the department raised its estimate of beginning stocks for this marketing year by 490,000 bales, resulting in an increase in ending stocks to 96.92 million bales.
At the close of trading Thursday at ICE, December cotton was 43 points higher at 80.84 cents per pound after briefly dipping below 80 cents. The contract seemed to be unfazed by the season's first negative export sales report from USDA.
Net export sales of U.S. upland cotton for the 2013-14 marketing year were reduced 10,900 bales in the week ended April 3, according to USDA, following cancellation of 68,700 bales from previous sales, primarily to Thailand and Mexico. It was the first negative report in almost two years, according to one analyst. However, net sales for 2014-15 totaled 119,300 bales, and Turkey was the featured buyer. Export shipments for the week were robust at 303,900 bales, up 23 percent from the previous week and 11 percent from the four-week average. Turkey, China and Vietnam were the primary destinations.
Meanwhile, traders and analysts are referencing with greater frequency the continuing drought in West Texas where conditions are rated extreme to exceptional across much of the region. Mostly sunny and breezy conditions are forecast through the weekend. Conditions in other parts of the U.S. Cotton Belt are much different as frequent rainfall has been reported in the Delta and Southeast growing regions.