Weekly Commodity Market Recap: Cotton

As sentiment for lower cotton plantings in coming weeks in most key growing areas around the world begins to take root, prices are firming in response. China, the U.S., Uzbekistan, and the African Franc Zone all expect to see less land planted to cotton and presumably fewer bales harvested this fall. Another survey of producers across several provinces in China points to a double-digit decline in plantings. While land planted to cotton may not be off as much as feared just a few weeks ago, a substantial drop in China appears highly likely. In the U.S., conditions across much of Texas and California remain drier than normal, and more rain is needed before planting time, else plantings and yields may be adversely impacted. The initial prospective plantings report from the USDA is due in little over a week, but is expected to show another sizable decline in U.S. acreage, possibly falling to the lowest level in over a quarter century.
More broadly, the rebound in commodity markets and the weakening in the dollar are also supporting cotton prices. The CRB Index last week reached 226.1, its highest point since January. Last week commodities surged the most this year, led by energy and precious metals, on speculation that the Fed’s steps to resuscitate the U.S. economy will spur demand for raw materials as a hedge against inflation. The Fed’s announcement to buy $1 trillion in long-term Treasuries also drove down yields and sank the dollar, helping to support export sales of cotton.
Beyond the boost from these outside influences, ICE cotton futures were able to show independent price strength as new speculative longs were established following an upside breakout after holding a well-defined double bottom first begun in November. Total open interest rose to 133,390 contracts toward the end of last week, the highest level in 4 months. Cotton’s attraction is linked to the heavy discount of the forwards and a rather impressive chart pattern. Prices finished the week just above 44 cents per pound, the highest point in six weeks. Expect faint flickers of an improvement in demand in several markets to be tested in coming weeks from the extinguishing influence of higher prices.