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Doane Cotton Close: Market Retreats from Monday’s Strength

Ernst Undesser
By Ernst Undesser April 24, 2012 16:23

The cotton market finished lower Tuesday, retreating from Monday’s strength which saw the July contract push to a new 3-week high. May was weighed down as today was first notice day and the mere 299 contracts of open interest were quite small. July lost 102 points to close at 91.46 cents and December was down 59 points closing at 88.71 cents.

Traders took some profits today from the recent gains, trading lower much of the session despite the weaker dollar and the strength in the soy complex. China issued new planting forecasts that pegged cotton lower, but not as much as previously expected. The new forecast calls for China’s cotton plantings to be down 9.4%, compared to previous forecasts calling for a decline of as much as 16.7%. Crop Progress report as of 4/22/12 showed 17% of the crop planted so far, up from 12% at this point last year and the 5-year average of 13%. Texas is ahead of normal at 23% and Arizona is a blazing 47% also. Only California is behind at 30% versus the average 68%, but this is an improvement over last week’s 10%. Some light rain in west Texas and forecasts for additional rain early next week are favorable.

The December has still been slower to post gains, but we will likely add to new crop sales soon, as the fundamentals are still fairly bearish.However, recent news of China reducing its import tax, which would be favorable for U.S. cotton exports, has helped limit downside price moves. Last Thursday’s weekly export report was a bit of a snoozer. Traders were expecting sales to be negative, and they were, but not by much, a mere 3,894 running bales for upland, 6,721 running bales if you add in the pima. China, Pakistan and Turkey accounted for most of the cancellations.

        
         

Shipments remain solid, however, at a total of 277,006 running bales. Approximately 68% of the estimated 11.4 million bales of U.S. cotton exports have shipped so far, and there are more than enough outstanding sales to allow for some cancellations.

India’s news continues to flip-flop. Thursday morning India’s trade secretary announced that they would be allowing new registrations of cotton for exports. This follows Wednesday’s news that India will ship 1.9 million bales of cotton by May 7 and that total exports will amount to 11.5 million 170 kg bales, equivalent to 8.98 million U.S. 480 lb bales. This is a little higher than USDA’s recent increase in its India export forecast from 7.75 million to 8.90 million bales for export. India’s cotton exports are larger than expected, so it is not a big surprise that they will hold off on shipping any additional cotton given their previous activity.

Also, India’s Cotton Advisory Board has increased its cotton production estimate to a new record 34.7 million 170 lb bales, or 27.09 million 480 lb. bales. More cotton on the world market should weigh on prices, particularly for an exporting country like the U.S. However, world cotton market participants are frustrated with India’s recent export fiasco, and might shy away from additional purchases.

Ernst Undesser
By Ernst Undesser April 24, 2012 16:23