Weekly Commodity Market Recap: Cotton

Cotton futures rose last week to finish at the highest close in sixteen months, owing to factors both internal and external to the market. Internally, projected supply and demand trends continue to point to higher prices. In the U.S., damage from the remnants of Tropical Storm Ida is likely to pare back domestic production prospects across much of the Southeast even further. Season-to-date, less than five million bales of cotton have been classed—hardly 70% of this point last year—suggesting production is likely to fall well short of last year’s 12.8 million-bale crop. Elsewhere, India’s Cotton Advisory Board added to the growing cacophony of analysts believing the local crop is likely to be smaller than earlier forecasts. At 23.0 million 480-lb. bales, their latest projection is well below the USDA's 24.25 million-bale November projection. And in China, a first look at the quality of this season’s crop shows length, micronaire, and grade are all poorer than by this point last year, suggesting demand for better-quality foreign growths may pick up in coming months. Also in China, the market shrugged off news of a third round of reserve auctions by the NDRC, with the nearby ZCE cotton contract surging limit-up in its last session to the highest close in over a year and a half. Clearly, the bulls are having their way with the market over recent weeks.

Outside the cotton market, re-strengthening in the broader commodity complex is helping buoy cotton prices. At 75.07, the dollar is teetering on the edge of falling to its lowest level in more than fifteen months, spurring a broad array of commodity prices, including cotton. The Reuters/CRB Index is flirting with its highest close in fourteen months, while gold stands at a record, more than $1,170/ounce. And recent news of existing home sales jumping much more than expected to the highest level since July 2007 is likely to bode well for the outlook for demand for cotton home textiles, further supporting the bullish sentiment behind higher cotton prices.