March 27, 2014
Volatility had the cotton market firmly in its grasp this week as futures prices at the Intercontinental Exchange (ICE) alternated between losses and gains each day and were punctuated by wide daily trading ranges. Front months were affected the most.
It began Monday following confirmation that China will cut the selling price of cotton in its strategic reserve by 4 percent effective April 1. The news was not unexpected, and there continued to be talk that the new price level may be linked to import quotas. Cotton Outlook estimates almost 59 million bales are contained in the reserve. Also noted by traders and analysts was the lack of any announcement regarding China's price support system for the country's cotton farmers.
Following the news from China, selling pressure emerged Monday at ICE and sent futures prices reeling. May cotton traded in a 343 point range, according to Cotton Outlook, before settling 268 points lower at 90.63 cents per pound while July settled 215 points lower at 90.55 cents. December cotton fared better, settling at 79.29 cents, down 96 points.
Tuesday was a different day and a different story as ICE futures regained all of the previous day's losses and then some. May and July cotton settled up 348 and 299 points, respectively, and the December contract gained 101 points to settle at 80.30 cents per pound. Support may have come from USDA's final ginnings report for the 2013-14 marketing year that was released at 11:00 a.m. CDT. At 12.86 million statistical bales ginned, the figure is more than 300,000 bales below the department's production estimate in its supply and demand report released earlier this month. Several traders and analysts expect USDA to cut its estimate of U.S. carryover stocks in the next monthly report.
Cotton futures reversed course again on Wednesday as selling pressure returned. May and July cotton futures traded in a huge range of 652 and 650 points, respectively. Eventually, May settled 245 points lower at 91.66 cents, and July settled 218 points lower at 91.36 cents per pound. December cotton was down 100 points at the close of trading at 79.30 cents. Volume surged to more than 56,000 contracts, and traders were unable to identify any specific news to explain the market's wild behavior.
Thursday's ICE session was much calmer, and turnover was notably slower. At the close of trading, May cotton was up 90 points, July was up 101, and December cotton settled 15 points higher at 79.45 cents per pound. Volume was estimated at 17,100 contracts. One analyst attributed the market action to a combination of speculative and fixation buying. Meanwhile, the latest weekly export sales report provided no surprises for traders and analysts.
USDA reported net upland sales of U.S. cotton totaled 66,300 bales for the week ended March 20, up 31 percent from the previous week but down 11 percent from the four-week average. China, South Korea and Turkey were the featured buyers. Net sales of 76,600 bales for delivery in the 2014-15 marketing year also were reported, primarily for Indonesia. Export shipments that week totaled 259,100 bales, down 21 percent from the previous week and 16 percent from the four- week average. Primary destinations were China, Turkey, Vietnam, and Indonesia. The sales and shipment figures are on pace to meet USDA's current export estimate for this marketing year.
In other news, unwelcome rains were reported this week in Australia where early yield reports have been promising, and growers are hoping for a return to sunny and dry conditions to finish harvesting their crops. Light rain also fell on parts of West Texas this week; however, sunny and dry conditions returned and were expected to remain in place into next week.