Doane Cotton Close: Market Settled Much Lower
The cotton market settled lower Thursday ahead of the 3-day weekend. Follow-through selling continued this morning after Wednesday’s big break, dropping futures to the price range in which they were trading about 2 weeks ago before the recent rally. May lost 78 points to close at 88.54 cents and December was down 72 points at 87.54 cents. This morning’s bearish export report for cotton confirmed trader’s fears on Wednesday, as there were big cotton cancellations. Anticipation of a poor export report triggered selling on Wednesday, which caused the nearby contract to fall by the biggest margin since last November.
Cotton sales were a net negative 143,743 running bales for upland cotton. Large cancellations by both China and Brazil were the big issues. Shipments remain strong though, over 422,000 running bales for both upland and pima, which could point toward an increase in USDA’s export forecast on Tuesday. The market has not seemed concerned about news out of India that they will be stockpiling cotton, with the government planning to purchase 1 million bales each of the next two months. India has not yet resumed registering cotton for exports, and has been slow to ship what is currently registered. Also bearish has been the higher than expected cotton plantings for this spring.
Cotton will be very susceptible to losing additional acres to soybeans. According to USDA’s Prospective Plantings report from Friday, cotton acres are seen falling from 14.732 million acres in 2011 to 13.155 million, a decline of 1.577 million or 10.7%. Georgia is seen with the biggest change after a huge record planting of 1.60 million acres in 2011 acreage is seen decreasing to 1.40 million. Texas is seen decreasing from 7.57 million to 6.81 million, which is proportionate with the total decline.
Large cuts are also expected for North Carolina and Arkansas, down 105,000 and 90,000 acres, respectively. Missouri was left unchanged at 375,000 acres while South Carolina is the only state seen increasing cotton plantings, up 37,000 acres to 340,000. Soybean prices are MUCH more desirable compared to cotton right now.
This time last year cotton was just off of its record highs, well over $2.00. Now prices are less than half of that, and although they have found support recently, the longer term fundamentals are fairly bearish. Soybeans, on the other hand, are above their year-ago levels and are pushing toward record highs. Uncertainty about China’s plantings and use will heavily sway the cotton outlook, but in general, world cotton stocks are burdensome at 62.32 million bales. USDA issued its first Crop Progress report of the season for cotton. The report showed 7% of the U.S. crop planted so far, compared to 5% last year and the 5-year average of 4%. Texas has planted 12% so far, Arizona 20%, Georgia 2% and Alabama 3%.We look for prices to trade mostly sideways from this point and for the trade to start focusing more on planting progress and conditions as cotton gets planted.
The ICE Dec and Mar contracts gave back 160 and 87 points on the week, respectively, as last week’s inversion between the two contracts gave way to partial carry. Well,