Weekly Commodity Market Recap: Cotton

Cotton futures saw little change on the week, as the market shrugged off the latest adjustments to forecasts from the USDA. As we have long argued, the USDA raised its export forecast for this year in response to another week of robust shipments, while lowering its old-crop production target a combined 800,000 bales in Brazil and India. The USDA also increased its 2008/09 estimate for Pakistani mill demand by 500,000 bales to 12.0 million. But bearish revised projections for the forthcoming marketing year offset the old-crop bulls. Particularly, anticipated Chinese mill demand and imports both fell 500,000 bales from last month’s forecasts, weighing on U.S. export prospects for next year.

For the week, Nearby cotton prices inched 99 points higher to 56.1 cents per pound, well within the 480-point band established over the last month. Reflecting the back-and-forth nature of prices recently, this latest week saw the first back-to-back daily declines in prices in a month. With little fundamental news establishing a clear bullish or bearish signal in recent days, cotton continues to take cues from outside markets. But as the declines in the dollar have begun to moderate, so too has price action in cotton, leading to this week’s dull trade.

This week promises to clear the fundamental picture a bit more, starting with the first crop condition report of the season. Analysts are watching the prospects for higher abandonment in Texas owing to drought, particularly along the Coastal Bend. Further downstream, retail sales data in several markets across Europe and Latin America may give a clearer look at when global consumer demand for apparel may begin to rebound, setting the stage for improved mill offtake. Also, last week U.S. cotton became quite competitive relative to several foreign growths. This is likely to spur increased sales in the next export report due Thursday. News developments on the dollar, the weather, and on the outlook for retail demand are likely to be key drivers for cotton prices in the near term.