Weekly Commodity Market Recap: Cotton

Last week’s trading saw U.S. futures end the week down 132 points from the week before, even as most of the week’s news took a modestly more bullish slant, suggesting shorter term there may be more downside potential in price. Last Monday’s open jumped 142 from the previous close, as Typhoon Morakot roared ashore in Taiwan and mainland China’s Fujian province. While the storm brought drenching rains to cotton in Zhejiang, Anhui, and Jiangsu, the impact likely may be more fully felt on shipping delays and slower retail sales growth. Midweek trading continued to see lackluster volume—an issue noted over the last two months—with futures inching higher. With few consequential changes from its July forecast, Wednesday’s August supply/demand report from the USDA was a non-event, with the market effectively shrugging off the report. Friday’s limit-down sell-off in cotton helped confirm our suspicions last week here that the market appeared mildly overbought. Nearby cotton prices fell to 59.21 cents, its lowest close in eight days.

The market continues to be influenced by thin summertime trading, making for more volatile conditions. In coming days, the impact from the first three named Atlantic and Gulf storms may weigh on prices. Already, Claudette made landfall Sunday night over the Florida panhandle and is expected to cut a quick path across to the Missouri bootheel by Tuesday afternoon. After coming ashore, this weak storm weakened more, as is currently classified as a tropical depression over southern Alabama. A stronger Ana may follow a similar path, while it is not expected to come ashore in the Southeast until late in the week. Bill has the most potential to reach hurricane strength, but several models suggest this storm may veer northward and remain well away from cotton in the southeast U.S.

Elsewhere, South Texas remains in the grip of a record drought, while West Texas may see a bumper crop. The 2009 Texas Upland cotton crop is expected to total 5.4 million bales, 21% more than in 2008. Yield is expected to average 701 pounds per acre, compared with 657 pounds last year. Acreage expected for harvest is estimated at 3.7 million acres, up 14% from 2008.

While we are not writing off the Indian crop, the monsoon remains unimpressive across much of the cotton area in India. The below-normal rainfall so far does not bode well for the crop. However, models do indicate that showers may increase over the next several days in some of the drier northern areas. Still, rainfall deficits are expected to linger and negatively impact yields in the world’s largest cotton area.