Doane Cotton Close: Market Makes Higher Finish
The cotton market closed higher Thursday, with new-crop contracts recovering from morning losses. May was up 162 points finishing at 93.00 cents and December was 119 points higher at88.30 cents.
Cotton is managing a valiant recovery in the old-crop contracts thanks to the bullish export figure in USDA’s April Supply/Demand report. Futures are moving into the mid-90s, and look to challenge a move higher still. New-crop contracts have been mostly lower the past few days, but bounced today after dropping to a fresh 3-month low. The new-crop bounce was mostly technical, though the solidly higher soybean market did lend some support.
The weekly export sales report was a bit disappointing, though with large shipments and accumulated sales already totaling the 11.4 million bale export estimate, this was not a big concern. Shipments were still solid at a little over 200,000 running bales. Though down from recent weeks, this will still easily meet USDA’s forecast. Weekly sales were a net negative 53,600 running bales due to cancellations from China, Indonesia and Guatemala.
Tuesday’s monthly Supply/Demand report from USDA was mixed for cotton, with U.S. fundamentals bullish while the world data were a bit bearish. USDA cut the U.S. yield for 2011 to 766 lbs/acr, down from 772 lbs/acr. This dropped production from 15.67 million bales to 15.56 million, which was in line with trade expectations. Exports were raised a huge 400,000 bales, putting them at 11.4 million. The weekly export reports have shown shipments maintaining a strong pace since late January, which has indicated that the export forecast would likely be increased. Hence, this was not a huge surprise for the adjustment to be made, but it was a bit more than was expected at this point in the marketing year, given USDA’s tendency to be slow in making such adjustments. The cut in production and increase in exports decreased ending stocks by a huge 500,000 bales to 3.4 million. This would typically be quite bullish, but given the burdensome world stocks, which were increased even further in this report, the impact is muted.
On the world level 2011/12 ending stocks were raised 3.75 million bales to 66.07 million. Ending stocks for 11/12 have been increased every month since September when they were estimated at 51.91 million bales. That puts cotton stocks 14.16 million bales higher than we were expecting 7 months ago. In September 2011 July cotton futures were trading in the mid to upper 90-cent range, whereas now they are trading in the upper 80-cent range. The growing stocks have mostly been due to cuts in the consumption forecast. However, today’s jump was largely attributable to a boost in 11/12 beginning stocks, as India’s “loss” category is now pegged at -1.75 million bales for both 09/10 and 10/11.
India has said that they do not plan to issue new cotton export permits. They are reportedly going to ship 1.5 million bales of cotton. The international cotton market is very frustrated with India, feeling that India has compromised its integrity. India went through a time of export uncertainty last year, and now doing this again will likely keep a black mark on them for a while as being unreliable. The cotton industry seems to have mostly factored India’s uncertainty in, as the lack of future exports did not have a heavy market impact.
Monday’s Crop Progress report showed 9% of the cotton crop planted so far. This compares to 7% a year ago and the 5-year average of 6%.
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,