ICE cotton futures finished Friday with another close lower, but still managed to rise for the week following Monday’s surprise limit-up move. Friday’s 76-point tumble in the Nearby capped four straight days of erosion in the May contract, but the combined 343-point loss over this period still did not fully offset Monday’s surprise 400-point surge. The curious turn in market prices shadowed a curious turn in breaking news last week. The big developments for the week that impacted the market were Indian policymakers vacillating over cotton exports followed by a generally bearish WASDE forecast for the U.S. and world cotton balance sheets.
First, early last week India announced an immediate export ban on cotton, whether or not the bales already had been registered for shipment. Apparently, the world’s second-largest cotton exporter has shipped substantially more cotton abroad than first anticipated, leading local the textile industry to worry that sufficient domestic cotton soon would be in short supply. In an ironic twist, large exporters are rumored to have shipped substantial volumes of local cotton to foreign warehouses in anticipation of the very export ban government officials say the shippers caused. The decision appears to have been made unilaterally without conferring with all domestic stakeholders, including India’s own Agriculture Minister. Understandably, the news threw markets into disarray and prompted howls of criticism, with local prices plunging while global and U.S. cotton prices rocketed ahead to start the week
But later in the week, the March WASDE provided its own fireworks, with surprise bearish adjustments to the balance sheets for both the U.S. and the globe. On the domestic front, despite strong evidence pointing to lower U.S. cotton exports, the USDA left this projection unchanged at a lofty 11.0 million bales. Instead, the USDA pared back its domestic cotton consumption forecast by 100,000 bales to just 3.4 million bales, the lowest in more than six decades. Worldwide, anticipated ending stocks jumped 1.55 million bales from February to 62.3 million, within a whisker of the record set five years ago. This adjustment eased the projected global stocks-to-use ratio to its loosest in a decade, weighing on price prospects later this year.
Lastly, the market was sent into another bout of disarray as Indian policymakers decided to move the goalposts again, not just once, but three times since Friday. First, prior to a meeting of cabinet ministers Friday to review the recent export ban, the Director General of Foreign Trade announced that cotton that had already cleared Indian customs by March 4th could be exported. Then Sunday Trade Minister Anand Sharma said the government had decided to fully roll back the ban, an apparent about-face from less than a week ago. However, Monday Trade Secretary Rahul Khullar announced the government won't accept new export registrations until it completes a review of recent exports and applications. This wavering indecision continues to roil markets and does little to boost the already-damaged reputation of India as a reliable cotton shipper.
Combined, the streak of declines Tuesday through Friday coupled with today’s intraday losses more than offsets last Monday’s limit-up jump on the ICE, suggesting the bears continue to maintain the upper hand over recent weeks. Since approaching medium-term resistance near $1.00/pound in mid-January, futures gradually eased lower, shedding roughly thirteen cents and presently stand near their lowest levels so far this year. If projected fundamentals for this marketing year continue to erode as we expect and there are no more policy surprises, the cotton market may be poised to ease lower as spring plantings approach and attention turns to weather developments for the new crop.
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