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    April 27, 2012

    Johnson On Cotton: China Moves Toward Record Import Level

    AgFax.Com - Your Online Ag News Source

    By Sharon C. Johnson, Analyst, Penson Commodities, Atlanta, Georgia

    Old crop weekly sales proved better than anticipated, with combined sales of 150K of upland and pima cotton. China remained at the forefront with purchases followed by Turkey and Mexico. As of Apr 19, commitments had risen to 11.62 mln running bales or 550K above the USDA equivalent of 11.07 (11.40 mln statistical bales).

    Weekly shipments totaled 287K, more than that necessary to reach the USDA target with China the primary recipient followed by Turkey, Vietnam, South Korea and Thailand. After 38 weeks, 7.76 mln running bales have been shipped, 70% of the USDA figure.

    Over the next 14 weeks, 3.31 mln bales must be shipped or 236K per week to achieve the official projection.  China and El Salvador account for the bulk of new crop sales (56K) as of a week ago with the total now topping the 1 mln mark at 1.03 mln running bales.


    US Competitiveness/World Export Prices – The Cotlook and USDA A indexes were up this past week rising to 100.47 (+1.50) with the former and 98.92 (+1.25) with the latter. The two cheapest Afr Fr Zone quotes, Benin and Mali, have been a fight with Brazil for the top spot on a near daily basis and this week is no different with Brazil at nbr 3, .35 pts higher.

    The remaining growths are on the north side of the 1.00 level with Greece’s weekly average of 102.05 and Uzbekistan’s at 103.60. All three of the US quotes (Calif is not shown) are up more than 2 cents with Texas (MOT) and Memphis/SE at 104.05, more than 5 cents above the cheapest growth. US quotes have advanced sharply in the past 2-3 weeks. Some of the strength can be attributed to futures movement but export sales in the same time span have been mixed at best.

    Chinese Imports – China remains very involved in the purchase and import of raw cotton this year, and if the USDA projected figure from this month is correct at 20.5 mln statistical bales, their imports will reach a record level.

    Cotlook updated Chinese amounts from Aug 1 to Mar 30 at 3.448 mln tons (15.8 mln bales) or 77% of the USDA figure. Indian cotton accounted for 1.46 mln tons (6.7 mln bales) of the import total in the first 8 months of the marketing year with the US contributing another 618K tons (2.84 mln bales).

    Using today’s US data, Chinese combined purchases and imports stand at 6.14 mln running bales or 55% share of US exports. Other countries including some of those within the Afr Fr Zone are contributing a substantial portion to China’s coffers. DJ reported today “at least 60% of the 180K metric tons of Cameroon’s crop was sold to China due to low demand from Europe, its traditional consumer”.

    PRICE IMPACT/COMMENTARY

    With one day left in the week, the lead month is slightly higher vs last week’s close, 92.1 vs 91.01 but 181 pts below its Mar 30 monthly close. Fri, Apr 27 and Mon, Apr 30 are the last 2 days of the month so all bets are off as to whether cotton will maintain its recent upward momentum or not. My technician says for Fri “July Cotton rotated back up and that creates a bearish three down “but” daily cycle for Friday. The odds favor a lower close.”

    Fundamentals and technicals have improved of late although in the case of the former, hard to see how they could get much worse and after testing its 50-day MA on Wednesday, the July contract surged back above it on Thurs’ session. The resistance points mentioned earlier this week of 93.12 and 94.19 remain valid for the July contract and could be tested into next week in front of the May 10 USDA supply/demand report.

    I will begin my pre-USDA reports next week and will include a more detailed discussion of the 2012 cotton crop but planting weather in the northern hemisphere has not been problem-free with questionable weather across parts of China and not much relief from the drought across portions of Wt Tx with not much expected into early May.

    Sharon C Johnson, @Copyright 2012

    The information contained in this report is taken from sources we believe to be reliable but is not guaranteed by us as to accuracy or completeness and is sent to you for information purposes only. Penson/First Capitol Group bases its market recommendations solely on the judgment of its personnel. Reproduction in whole or in part or any part or any other use without permission is prohibited.   

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