Weekly Commodity Market Recap: Cotton

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The most-traded December contract fell for the fourth straight week last week, finishing Friday at 73.96 cents per pound, the lowest weekly close in five months. In the U.S., weather typically is the biggest influence on cotton trading at this point in the year, and this season is no exception. The sentiment that a ‘big crop is getting bigger’ is commonly held across the Belt. Already, at 18.3 million bales, the latest forecasted harvest size from the USDA reflects a robust upswing in estimated cotton plantings from estimates just a few months ago and higher projections for yield. Even so, this higher target still may prove too low, given the increasingly optimistic view for the Texas crop here. While cotton across the southeastern U.S. struggled under near-record heat in June here, west Texas cotton received welcome showers that could be just what the crop there needs to rival record yields. The latest trend of daily prices for the October and December contracts reflects this view of a ‘big crop getting bigger’. Instead of the normal contango in the market, December presently is trading for 600 points less than October, suggesting the market expects a much-larger crop once the harvest is completed after the expiration of the October contract.


With roughly two-thirds of the global cotton crop grown in the northern hemisphere, summer weather is a driving force for cotton markets around the world at this point in the crop cycle. In China, home to the world’s largest cotton harvest, in spite of springtime planting delays, the crop is likely to surpass last year’s size, rising to roughly 33.0 million bales. In fact, the latest forecast from China’s National Cotton Market Monitoring System (NCMMS) here looks for a harvest 3.3% bigger than last year, concurring with USDA forecasts. And while the crop remains behind across much of the country, producers across China see development in recent days narrowing the gap, supporting the cautious optimism for yields and harvest size.

In India, where more land is planted to cotton than any other country, a lackluster monsoon has yet to crimp prospects for a record crop. While last week’s report from India’s Meteorology Department here suggests season-to-date rainfall is 13% below normal, no major damage has been reported to the crop yet. In fact, analysts believe that even if the monsoon remains similarly below normal for the rest of this season, the crop could still develop well, as long as rains are well distributed. So far this season, central and northeastern states remain relatively drier, while the southern half of the country has seen an abundance of showers. Should widespread showers pick up in coming weeks, Indian production could rise to a record 25.0 million bales on the strength of record plantings and higher yields, also helping to throttle back global prices in the new marketing year. But if the optimism begins to fade both in China from persistent crop delays and in India from uneven, scant monsoon rains, anticipated tight global stocks in the new marketing year could push average prices higher in 2010/11, no matter how big the west Texas crop may be.