Weekly Commodity Market Recap: Cotton

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As the holidays approach, the U.S. cotton market remains relatively quiet, locked in a narrow 240-point range over the last month, with little fundamental news of substance to steer price higher or lower in recent days. In the bears’ camp, most commodities were on the defensive last week as the dollar index rallied from its lowest level since August 2008 to a three-month high. Corn, wheat, and soybean each edged lower last week as the greenback rose for the third straight week. Also, a Memphis-based forecasting group released one of the first crop outlooks for 2010, calling for domestic cotton acres to expand about 10% from this year’s quarter-century low to 10.0 million acres. And while the longer-term outlook for the global textile complex continues to improve in the wake of last year’s economic contagion, several markets around the world still saw output fall again in the latest month—albeit at slower rates—postponing any premature calls of the end of the global textile recession.

The bulls take comfort from a few bits of news last week, offsetting the bears’ momentum and keeping cotton prices range-bound. Retail apparel markets in several countries continue to percolate, suggesting better, frothier days lie ahead. And news from China indicates that output in most sectors of China’s textile behemoth continues to re-accelerate, shaking off the lingering effects of last year’s slowdown. Shorter term, we are wary of choppy trading on holiday-induced lower volumes as the market trudges through this latest consolidation pattern. We remain cautiously bullish on price in the medium term, but believe the outlook for increased global plantings longer term will suppress the market’s exuberance for higher prices into the spring.