FCStone Fibers & Textiles Announces New Multi-client Study, "The Future of High Quality & Branded Cotton"

High quality and branded cotton acreage is on the decline around the world. In China, there is a major shift from extra long staple (ELS) to long staple (LS) cotton acreage underway in Xinjiang, the country's top cotton-producing province. In the U.S., Pima acreage is rapidly disappearing while Egypt is expecting a 50% reduction from last year's output. Ultimately, the rise of long staple cotton is supplanting high quality and branded grades, the ramifications of which will have a major impact on how merchants, mills, and retailers trade, purchase, consume, market, and brand high-quality cotton as a fiber and end-product.

FCStone Fibers and Textiles (formerly Globecot, Inc.) proposes to undertake a strategic study of the key countries producing long staple (LS) and extra long staple (ELS) cotton with a primary focus on China, India, the U.S. and Egypt. If you would like more information about this study, download the project prospectus. If you have any questions regarding this study, please contact Saira Farrukh (saira.farrukh@fcstone.com) or Fred Hardin (fred.hardin@fcstone.com).

Weekly Commodity Market Recap: Cotton

After drifting lower over the last five weeks, the nearby price for U.S. cotton futures plunged in the latest week, led by a limit-down move last Monday, finishing at the lowest weekly close in over two months. Prices tumbled 454 points on the week to 51.56 cents per pound, weighed down by an eroding fundamental and technical picture.
Several fundamental factors contributed to sink prices in the latest week. West Texas saw an improvement in soil moisture levels from a rain front from Mexico, with the possibility for more in the next week. The dollar rose modestly after favorable comments about its continued status as the world’s reserve currency, dampening enthusiasm for a host of commodities, including cotton. And unfixed call sales in the U.S. retreated to 41,519 contracts, the lowest in a month, helping to drag futures lower. Plus, China’s auction of reserve stocks remains lackluster, suggesting little need to open new import quotas in coming weeks, despite persistent rumors to the contrary. Finally, disappointing reports on retail apparel demand from several markets around the world last week suggested a rebound in global offtake for cotton may be delayed longer than had been expected. These nuggets of news buoyed prospects of higher supply and waning demand, dragging prices lower.
Technically, several short- and medium-term indicators point to a continued bearish picture for cotton, while longer-term indicators hint at a more robust outlook. Certainly, the week has been unusually volatile. Monday’s limit-down move came before two down days and an almost 300-point outside range reversal Thursday, before the market turned defensive again Friday. The drop in futures this week made U.S. cotton the most competitive growth in the world. Also, the weekly spec/hedge report showed speculators continue to reduce their net long position, as it is now 5.3% net long versus 9.5% last week. Not only are speculators reducing their net long position, they are shedding overall open interest, as well. Open interest fell to 112,947 contracts late in the week, the lowest in three and a half years. Whatever the reason, they are losing their appetite for long cotton.
The market likely will remain in limbo before first notice day Wednesday and subject to pre-report positioning until after the June 30 Acreage report from the USDA. There has been talk of acreage being up from the Prospective Plantings estimates in late March, which may be factoring into market weakness. But the delayed crop, combined with east Texas dryness and soggy conditions across much of the northern reaches of the Mid-South are likely to have a detrimental impact on final U.S. production.

FCStone Fibers & Textiles Announces New Multi-client Study, "The Future of High Quality & Branded Cotton"

High quality and branded cotton acreage is on the decline around the world. In China, there is a major shift from extra long staple (ELS) to long staple (LS) cotton acreage underway in Xinjiang, the country's top cotton-producing province. In the U.S., Pima acreage is rapidly disappearing while Egypt is expecting a 50% reduction from last year's output. Ultimately, the rise of long staple cotton is supplanting high quality and branded grades, the ramifications of which will have a major impact on how merchants, mills, and retailers trade, purchase, consume, market, and brand high-quality cotton as a fiber and end-product.

FCStone Fibers and Textiles (formerly Globecot, Inc.) proposes to undertake a strategic study of the key countries producing long staple (LS) and extra long staple (ELS) cotton with a primary focus on China, India, the U.S. and Egypt. If you would like more information about this study, download the project prospectus. If you have any questions regarding this study, please contact Saira Farrukh (saira.farrukh@fcstone.com) or Fred Hardin (fred.hardin@fcstone.com).

Weekly Commodity Market Recap: Cotton

Cotton futures saw little change on the week, as the market shrugged off the latest adjustments to forecasts from the USDA. As we have long argued, the USDA raised its export forecast for this year in response to another week of robust shipments, while lowering its old-crop production target a combined 800,000 bales in Brazil and India. The USDA also increased its 2008/09 estimate for Pakistani mill demand by 500,000 bales to 12.0 million. But bearish revised projections for the forthcoming marketing year offset the old-crop bulls. Particularly, anticipated Chinese mill demand and imports both fell 500,000 bales from last month’s forecasts, weighing on U.S. export prospects for next year.

For the week, Nearby cotton prices inched 99 points higher to 56.1 cents per pound, well within the 480-point band established over the last month. Reflecting the back-and-forth nature of prices recently, this latest week saw the first back-to-back daily declines in prices in a month. With little fundamental news establishing a clear bullish or bearish signal in recent days, cotton continues to take cues from outside markets. But as the declines in the dollar have begun to moderate, so too has price action in cotton, leading to this week’s dull trade.

This week promises to clear the fundamental picture a bit more, starting with the first crop condition report of the season. Analysts are watching the prospects for higher abandonment in Texas owing to drought, particularly along the Coastal Bend. Further downstream, retail sales data in several markets across Europe and Latin America may give a clearer look at when global consumer demand for apparel may begin to rebound, setting the stage for improved mill offtake. Also, last week U.S. cotton became quite competitive relative to several foreign growths. This is likely to spur increased sales in the next export report due Thursday. News developments on the dollar, the weather, and on the outlook for retail demand are likely to be key drivers for cotton prices in the near term.

Weekly Commodity Market Recap: Cotton

The market is set to digest a slew of data this week that could help set the direction and pace for what has become a listless cotton market. Industrial production and retail trade reports from several key markets around the world may shed insight into the likelihood of improved demand for textiles and apparel around the globe.
In one of the most anticipated releases this week, new WASDE data Wednesday may set the tone for a gradual improvement in fundamentals, or could keep the cotton market mired in burdensome oversupply. We look for the report to boost the old-crop U.S. export forecast by a few hundred thousand bales, reducing carryover stocks and tightening the domestic stocks-to-use ratio. Looking to the new marketing year, we don’t expect much change in U.S. production, as an abundance of moisture in the Southeast and Mid-South may offset dry conditions in South Texas and California’s San Joaquin Valley.
On the demand side, we believe at 3.5 million bales, the U.S. mill demand forecast is optimistic. Consumption has recently averaged closer to 3.1 million bales, and we see little reason to expect a 10-15% improvement in 2009/10. We look for a rebound in the global economy in 2009/10 to drive a jump in global cotton mill demand and a global trade. Accordingly, as the world's largest exporter, we expect an increase in global cotton trade to prompt an increase in U.S. cotton exports in response. This increase from the USDA is likely to come gradually over the next several months, but we look for the higher revisions to start soon. Little anticipated change in supply from the May WASDE report, coupled with a net increase in demand is likely to reduce U.S. ending stocks to the lowest level in six years.
Cotton prices eased again last week, down three of the last four weeks, after breaking from their March-to-May surge. Nearby prices dipped 186 points, finishing the week at 57.11 cents per pound. Futures prices declined on the week as strength in the dollar continued to have a strong influence on cotton. Just as cotton is mostly higher since March, the dollar is mostly lower over the period. But last week saw a sizable rebound in the dollar, boosted by positive data in Friday’s unemployment report. With few unanticipated changes in the fundamentals yet to materialize from the forthcoming cotton marketing year, we look for cotton to take more direction from the influences of outside markets. We remain mildly bullish longer term, but expect choppy conditions to persist into the summer.

Outlook: The Future of the Global Cotton & Polyester Markets

The past 18 months have challenged the global cotton trade as never before. After surviving a virtual collapse in aggregate textile demand not seen since the Great Depression, global over-capacity has become a serious problem for the long-term viability of the fiber and textile trade. Further, dramatic changes in the international textile industry have resulted in new consumption trends. This has led to serious problems for merchants, co-ops, producers and consumers of cotton. At the same time, cotton has lost market share to polyester on a global basis. As if these problems were not bad enough, provisions of the Farm Bill are having unforeseen effects on the market – effects that will have long-term implications.

As a result, we are undertaking an extensive multi-client study of the global supply and demand situation for polyester fiber and cotton. The study will be completed in June.
Recognizing that basic market statistics are widely available, FCStone Fibers & Textiles, is building upon these data to establish a realistic forecast for future textile fiber consumption and production. Because of our unique perspective of the cotton and textile businesses, we are leveraging our unique insight into the market with supporting quantitative and qualitative information. The ensuing study will be designed to provide a competitive advantage to sponsor companies.

Click here to download a copy of our project prospectus.
Questions? Click here to contact us now to discuss, or call us at 615-234-2757

Weekly Commodity Market Recap: Cotton

Even though the trading week was shortened by holidays in the U.S. and China, cotton saw a jump in volatility, with prices swooning almost limit-down during intra-day trade Tuesday, only to bounce limit-up during early trading Friday. On balance, the two days mostly offset one another, with prices easing 14 points from last week to 56.97 cents per pound. Sunny, drier weather across much of the U.S. cotton belt enabled producers to rapidly advance plantings last week, but the season-to-date national pace still remains well behind trend, hinting at the increased potential for yield and quality issues later this autumn. At 61%, the share of crop already planted to cotton jumped 19 percentage points from last week, but is still down 8 points from the five-year average. Arguing further for the bulls, U.S. exports in the latest week remained above the pace necessary to reach the latest USDA forecast, reinforcing our belief that this forecast is too low. At 296,000 bales, shipments again easily outpaced the 207,000-bale pace necessary to reach the 12.5 million-bale target from the government. We look for exports in 2008/09 to exceed 13.0 million, putting tighter pressure in coming weeks on the domestic stocks-to-use ratio. Further cementing the bulls’ argument, the U.S. Dollar Index breached its December 2008 low, breaking technical support levels and driving a host of commodity prices higher.
The bears point to the acceleration in the auctions of reserve stocks in China, weak U.S. mill demand, and scattered showers across much of Texas to temper price gains. China said last month it will sell just over 1.5 million tons of cotton from its state reserves in a bid to ease tight supplies. Since May 22, Chinese textile mills in China have bought 65% of the 58,442 tons released for sale so far. While a far cry from the total reserve levels, volume jumped in the latest day of trading after the government eased the procurement price as discussed here. Also last week, the U.S. Census Bureau announced that annualized April mill use fell to less than 3.1 million bales, the lowest April ever recorded. This is less than the 3.6 million currently anticipated by the USDA for 2008/09, and may drive the projection lower in coming months. Finally, wet weather returned to much of Texas in recent days, benefiting the young crop. While Rio Grande cotton remains under exceptional drought conditions, the welcome rains alleviated dryness across much of the Rolling Plains and West Texas, hinting at improved yield prospects in the largest cotton-producing state.

Weekly Commodity Market Recap: Cotton

Following the correction in prices witnessed two weeks ago, last week the market entered a consolidation pattern as big, offsetting bullish and bearish factors grappled for dominance. Following weeks of speculation, China began to release its ample supplies of reserve stocks to the market. This 1.5 million-ton move is likely to limit any new import quotas in coming months, while the local market digests this extra cotton. While the announced price is only modestly less than futures prices on the Zhengzhou Cotton Exchange, the psychological impact on the market is likely to outweigh the fundamental impact. Also, a record -15.2% annualized plunge in Japanese GDP here dimmed prospects for a quick rebound in clothing demand in the world’s second-largest retail apparel market, casting a bearish pall over the cotton market.
But the bulls were also active last week, led by dollar weakness and robust U.S. cotton shipments. Persistent weakness in the greenback continues to support many commodities, and is providing a solid floor to cotton. The U.S. Dollar Index continued its fall toward the lows set in mid-December. This weakness in the dollar comes as cotton exports soared to a marketing year-to-date high. At 465,000 bales, last week’s volume almost doubled from the week before. It also supports our argument here that the latest USDA forecast may be too low. With less than twelve weeks remaining in the marketing year, exports only need to average 214,000 bales per week to reach the government forecast of 12.5 million bales. FCStone models suggest exports may finish closer to 12.9 million bales, tightening the domestic stocks-to-use ratio this year and supporting an argument for higher prices.
Nearby cotton prices ended the week modestly higher, finishing with a gain of 81 points from the week before, reaching 57.11 cents per pound. While we continue to affirm the longer-term bullish uptrend in cotton prices, last week’s consolidation pattern could point to a nearer-term breather for the market in coming days, particularly if the dollar sees a brief rebound in its gradual slide lower.

Weekly Commodity Market Recap: Cotton

Cotton prices continue to climb on further tentative signs of improving global demand and continued movement away from the dollar, outpacing gains in other softs and ignoring technical signs of being extremely overbought. U.S. Nearby prices finished the week just shy of 60 cents per pound, the highest close in almost eight months. This marks the eighth weekly gain in the last nine weeks, showing a pronounced 20-cent rebound from the November/March double-bottom. After lagging corn and soybean prices during much of 2009, cotton prices have climbed faster than either crop the last few months, and are already up 22% since the start of the year. While the late arrival of this rebound may have a limited impact on plantings across much of the U.S. cotton belt, technical indicators are screaming for a correction. The daily Relative Strength Index stands at 83.0, a few standard deviations away from its long-term mean of 50 and the highest point since cotton futures’ dramatic spike in March 2008. The higher and faster cotton prices escalate, the more in need of a correction the market becomes.

But the gradual erosion in the dollar is having a big impact on wide-ranging strengthening across much of the commodity complex, including cotton. The exit from the greenback began some time ago but has recently escalated in Asia, where new confidence in the regional economies and faith in local currencies are taking hold. As the dollar continues to weaken, the case to move funds back into commodities is again looking strong. Longer-term, we remain quite bearish toward the dollar; if this erosion persists, it is likely to be a major stimulus for the overall commodity complex buoying cotton.

The new week promises much new data on the outlook for cotton in 2009/10. Monday afternoon’s crop progress report is likely to show cotton plantings in the U.S. remain even further behind normal, as a deluge of rains to muddy Delta and Southeast fields delay plantings. The USDA will release its first country-by-country breakdown Tuesday morning, one month earlier than normal. We expect dramatic declines in production in China and the U.S., with gains in India and Australia partially offsetting the losses elsewhere. On the demand side, we project global mill use will rebound somewhat in 2009/10 from this year’s record collapse, as growth prospects improve in many markets around the world. A look at old-crop cotton estimates suggests U.S. demand may rise from the April projections, as higher-revised exports overshadow another likely decline in domestic mill demand. Globally, we expect mill use forecasts for 2008/09 will drop for the eleventh straight month, primarily owing to even lower estimates in China. Later in the week, April estimates of Chinese yarn and fabric output are likely to provide more evidence of a rebound in demand in this market, stoking hopes for improving offtake globally later in 2009.

Weekly Commodity Market Recap: Cotton

Rising in concert with the broad strengthening in commodity markets, cotton prices finished the week at the highest close in seven months, but the presumptive re-strengthening in global textile markets is proving to be tentative, suggesting the robust gains in cotton prices may be premature. Nearby prices in the U.S. settled at 57.20 cents per pound Friday, up seven of the last eight weeks and the highest close since early October. The bulls point to several factors supporting the two-month rally in price. Across the cotton belt, plantings are running behind trend in virtually every state, possibly limiting the number of heat-degree days the crop may receive. Continued dry conditions and inadequate snowpack in California promise to limit irrigation supplies and hinder crop development there, suggesting that state’s cotton crop could only reach a paltry half a million bales this year, the lowest since World War II. The 2009 Central Asian crop has gotten off to one of its worst starts in ten years, with an unusual pattern of wet and rainy conditions plaguing many of the growing areas of Uzbekistan and Turkmenistan, which account for the bulk of the acreage in the area. Also, speculators’ net long position increased again last week, reinforcing the bullish sentiment. Finally, the first signs of an improving economic outlook around the world are beginning to show, implying improved textile offtake in the forthcoming marketing year.

The bears counter with several factors that suggest the market is due for a correction. First, the technical picture remains overbought. Friday’s Relative Strength Index (RSI) for the Nearby reached 78.69, the highest level since March 2008, when prices began an eight-month slide. Since bottoming out in November, cotton prices are up over 40%, easily outpacing the rebound in corn and soybean prices. Fundamentally, cumulative new investment in China’s textile and apparel sector in the first quarter remains less than over the same period last year, suggesting 2009 may see lower output from the world’s largest cotton consumer. Wetter conditions returned to West Texas and most of the northern Cotton Belt in the last week, providing a welcome boost to sub-soil moisture levels before plantings commence in these areas. And longer term, Australian forecasts suggest plantings there could rebound to the highest in years, as reservoir levels continue to improve. We remain modestly bullish longer term, but increasingly look for an overdue short-term correction in the market.

Weekly Commodity Market Recap: Cotton

ICE cotton futures continue to march higher, rising for the sixth time in the last seven weeks, but more cracks are appearing in this recent bull run. The Nearby contract finished the week at 52.70 cents per pound, surpassing January’s near-term high and reaching the highest close in six months, buoyed by factors internal and external to the cotton market. A weaker U.S. dollar and still-massive Chinese and Indian stocks that remain withheld from the market provide a firm foundation to price. Also, the CFTC recently reported that unfixed call sales of cotton rose for the sixth straight week—tracking the rebound in futures—and reached their highest level in two and a half months.

But cracks in the façade are beginning to show, suggesting a correction may be warranted. Even as the first green shoots of improving demand are beginning to appear in pockets around the globe, one must remember world cotton mill demand and trade remain in the worst contraction on record. China is showing more signs of improved offtake, but Indian cotton textile output collapsed in February. Pakistani and Turkish mills remain in dire straits, while one of the largest yarn mills in the U.S. closed for good earlier this month. Technically, nearby cotton prices pierced 70 on the RSI for the first time in ten months, adding another overbought signal. While other ag futures—particularly on corn and soybean—are up in concert from their near-term lows set in early March, cotton has climbed faster, supporting the notion of a pullback. We continue to expect the global textile economy to improve in the new marketing year, supporting an outlook for modestly higher prices, but look for a nearer-term correction in the market before journeying higher.

Weekly Commodity Market Recap: Cotton

Since reaching its year-to-date low in early March, cotton continues on its tear, with prices rising for the fifth time in the last six weeks. At 49.94 cents per pound, Friday’s close on ICE Futures U.S. is the highest in over two months and reflects a 24% rebound from its March low. An improving fundamental outlook is helping to support prices. While global fiber and textile markets still remain weak, signs of life are beginning to emerge, suggesting brighter days ahead. Chinese mills boosted yarn production in March at a double-digit pace to the second-highest level ever recorded. Similarly, output of manmade fiber in this latest month inched to a new high, driven by renewed demand. In the U.S., CCC cotton loan stocks extended their rapid contraction for a fifth straight week, while Chinese reserve procurement stocks still remain withheld from the market as prices have risen. At the same time, plantings in a handful of countries may fail to reach early projections, implying likely lower stocks in the forthcoming marketing year and evidence for higher prices globally.

While we remain bullish for price in the long term, we are hesitant in the near term, owing to prospects for a shorter-term pullback. The USDA still maintains what many market observers—including us—have maintained for some time is an unrealistic forecast for Chinese mill demand this marketing year. Additionally, new U.S. cotton usage data for February suggest the domestic forecast remains overstated. And several technical indicators for the short-, medium-, and long-term increasingly are showing ‘buy’ signals. While we pay close heed to the technicals, the contrarian argument suggests if everyone is long, the time for a correction may be rapidly approaching before the market continues higher.

Weekly Commodity Market Recap: Cotton

The latest week provided the first hints of evidence of a market that is seeing the first flickers of improved demand that could point to sustained strengthening in prices well into 2009/10. Last week brought the first peek at the USDA’s prospective plantings report for the 2009/10 crop. The report pegged U.S. cotton acreage sliding 7% from a year ago to 8.8 million acres, the lowest in more than a quarter century. But the forecast actually fell in the middle to higher-end of the range anticipated by industry analysts, and was largely viewed as neutral to the market. Assuming average abandonment and yield in this coming season, the crop size may be little different from the 13.0 million bales just harvested this past fall.
The market also awaits the latest USDA numbers due to be released this week. While April’s figures typically have less of an impact on the market than preceding months, they cannot be disregarded. We look for the supply side to remain little changed from March, while domestic demand is likely to see a mild increase, owing to a higher export forecast. On balance, U.S. ending stocks may shrink 150,000 bales owing to higher demand. Globally, the USDA’s production forecasts have dropped seven of the last nine months, shedding almost eight million bales from its initial projections in June. We expect another decline—albeit a smaller one—owing to adjustments from Asian and Southern Hemisphere producers. We also expect to see continued contraction on the demand side, perhaps slipping a quarter million bales to 110.8 million. Mill demand forecasts have declined each of the last nine months, collapsing a jaw-dropping 16 million bales. While we are beginning to see signs of bottoming out in usage patterns in different countries, we expect to see further contraction in several markets in coming months. On balance, lower global supply and demand forecasts could offset one another, meaning little net change in ending stocks from the March forecast of 62.5 million bales.
Despite a rather neutral estimate of U.S. plantings, New York futures subsequently showed considerable strength on the week, influenced both by gains in other commodities and by tentative signs of a bottoming in demand prospects. One development currently playing a role in the behavior of global prices is the rally in domestic cotton prices that is occurring in three of the largest producing and consuming markets—China, India and Pakistan. Chinese domestic prices soared to a five-month high in the latest week. The driver in prices is a shortage of high grades throughout East China. In Pakistan and India, local prices are also firming as the available supply of high grades tightens and yarn inquiries—especially from China—perk up. Futures prices are up for the third week in the last month, with U.S. Nearby prices closing last week at 47.6 cents, the highest level in almost two months. While we remain longer-term bullish, the rapid ascent in price coupled with several technical indicators point to overbought conditions and suggest the need for a consolidation before the market climbs higher.

For more analysis on the global fiber and textile supply chain, please visit our website at www.globecotnews.com.