Weekly Commodity Market Recap: Cotton

Bullish internal influences grappled with bearish external drivers last week, keeping cotton mired within the previous week’s trading range. In the global cotton market, supply and demand indicators both hinted at tighter fundamentals in coming months. In the U.S., an early-season snow here blanketed much of the remaining unpicked northern cotton crop from New Mexico across the Mid-South. While this snow did not last long, this year’s crop is the latest on record and any remaining fiber still in the field is likely to see big increases in boll rot and declines in yield and quality in wintry weather increases. Across these states, only about 10% of the crop remains in the field, accounting for roughly 300,000 bales.

Globally, voices in Pakistan and India are adding to the growing chorus calling for all-out bans on cotton exports from both countries. Local industries in both markets are concerned over intensifying shortages of fiber and yarn here, prompting calls to both governments to take action. While we do not expect either administration to implement these requested bans, both governments will be obliged to listen to the concerns of the industries and may offer some token policy to encumber exports and placate the industries, either in the form of additional registrations or new export levies. While not as severe as an all-out ban, this action would remain bullish for global prices.

On the demand side, U.S. export sales were phenomenal for a holiday-shortened week, even if shipments lagged the pace we would have like to have seen. Net upland sales reached 250,700 running bales, the most in more than three months. China remained the dominant buyer, followed by strong sales to Turkey and surprisingly to Brazil. We are anxious to see if this jump will continue next week, or if mills are guilty of panic buying once again.

Speaking of textile mills, the weekly Cotton On-Call report here raised a few eyebrows. After falling for five straight weeks, unfixed on-call sales made by merchants to textile mills increased by 3,612 contracts last week and now stand at 49,582. Meanwhile, unfixed on-call purchases mills have made from growers grew only 92 contracts to 9,064. The March contract shows a greater imbalance, with unfixed on-call sales increasing 5,413 to 21,111 while on-call purchases fell 360 to 3,258 contracts. If mills are not proactive about fixing their March cotton, it is not entirely out of the question that we may see another bullish repeat of the December situation where mills need to fix, and there are few sellers left right before first notice day arrives.

Outside the cotton markets last week a stronger dollar, a retreat in crude oil prices, steep losses in gold futures and weak prices for grains all weighed on cotton futures. In spite of the bullish influences noted earlier, nearby cotton futures sank two points from the week before to 73.82 cents as these external factors weighed on price. Late in the week, a rally in the dollar, spurred by thoughts that interest rates may rise sooner rather than later after the economy lost a much fewer-than-expected 11,000 jobs last month, exerted broad influence on commodities. NYMEX oil sank to $75.47 last week, its lowest weekly close in two months. After soaring thirteen of the last fifteen weeks to a record high last week, gold also lost some of its luster following a Friday sell-off, sinking well below $1,200/ounce. Alternative crops also wilted under the dollar pressure. After reaching a six-month high last Monday, nearby wheat futures fell each of the next four days, trending lower in step each day with lower corn prices. As these opposing forces jostle for the dominant influence over cotton prices, we still look for the market to move higher, just not quite yet.