Weekly Commodity Market Recap: Cotton

for more analysis like this, please click here.

After tumbling for five straight weeks to the lowest close in three months, nearby cotton futures soared last week, posting its biggest weekly jump in almost seven years. At 74.39 cents per pound, the market finished Friday up 777 points from a week earlier to the highest close since its January 4 peak. The dramatic rebound primarily is attributable to fundamental issues directly impacting the fiber, rather than external factors swaying the tide of most commodities.

In particular, a bullish late-season revision to the USDA’s monthly WASDE report helped set the tone for the week on Tuesday morning. The USDA revised its U.S. export forecast higher by one million bales from January, the largest increase in history at this point in the marketing year. The jump is in response to robust new sales each of the last several weeks and predicated on the belief that exportable supplies from key competitors in Brazil and India may dwindle sooner than expected. In turn, higher anticipated exports in 2009/10 drove projected ending stocks for this marketing year lower by one million bales, to 3.3 million. Forecasts for higher demand and lower ending stocks tightened the anticipated stocks-to-use ratio to 21.4%, the second lowest in a dozen years. These tighter fundamentals drove nearby futures limit-up in Tuesday trading, helping shake off the bearish pall hanging over the market in 2010. Additionally, as this anticipated ratio has gradually tightened each month over most of the marketing year, it has driven futures prices higher. February’s 21.4% stocks-to-use ratio implies further gains in price may be forthcoming in the near term.