Weekly Commodity Market Recap: Cotton

Buoyed by supply concerns and bullish outside influences, cotton prices extended their impressive streak of gains last week, rising to the highest levels in more than fourteen months. December futures rose for the eighth time in ten sessions Friday, up more than 750 points over the last two weeks. At 68.21 cents per pound, the December contract finished the week up for the fifth time in the last seven weeks as the bulls clearly dominated the news.

Concerns continue to mount over harvest prospects in several markets. In particular, Delta cotton fields in the U.S. remain soggy from persistent rains over the last month, hindering and delaying harvesting. Evidence here shows near-record rains fell over recent weeks in the area, and are likely to damage yield and quality to cotton from the region. Also, after suffering through its third summer of drought, recent downpours in California discussed here have come at a most unwelcome time, with virtually all the cotton bolls open, but hardly 6% of the crop harvested. Adding to the dismal outlook, Hurricane Rick in the eastern Pacific here may complicate harvests in Texas closer to the weekend, further compromising the U.S. crop.

Too much rainfall also remains a concern in China, where futures prices are flirting with their highest levels in almost a year and a half. Several eastern provinces report delays in harvesting and damage to quality from untimely rains, driving local prices higher. In fact, even with prices continuing to firm, evidence here shows many producers remain reluctant to sell, expecting prices to rise further. Recently-revised forecasts promulgated within the country here point to lower production and higher demand, supporting this sentiment, boosting domestic prices.

Even away from the fundamentals, other signs point to continued strengthening in price. The dollar continues to sink lower, plunging to its lowest weekly close in fourteen months, helping boost a wide range of commodity prices. Cheerful words from the Fed and the Treasury are doing little to turn investor sentiment back to the dollar, particularly after last week’s news of a record $1.4 trillion deficit in the U.S. Also, money flow into cotton has been impressive and open interest is exploding. New speculative money matched up against new commercial hedging has amplified the expansion of open interest. And unfixed call sales reported here in last week’s Cotton on Call report rose to a thirteen-month high, supporting continued gains in price.

This string of higher closes is reminiscent of the period two years ago when futures began their march to the highest levels in years, culminating in the March 2008 spike. While this is not the same market—with the same outside influences and hysteria driving prices higher—the trend remains firmly with the bulls, even as the bears point to the need for a correction. For now the market has some strong upward momentum.