Weekly Commodity Market Recap: Cotton

After rising each of the previous three weeks, cotton futures retreated last week on weaker outside influences, fund selling, better harvest weather, and bearish technical signals. After cresting at the highest level in more than a year, nearby prices dropped 124 points on the week to 61.94 cents per pound, pulled lower by Friday’s nearly limit-down close. The broader commodity complex saw general weakness over recent days, as the CRB Index eased lower for the week. This broad-based weakness weighed on cotton prices as the dollar posted a modest recovery last week. After falling to a 13-month low, the U.S. Dollar Index rebounded late in the week to a three-week high before settling at 77.02, up 35 points on the week. Also, confirming the relationship we showed here, weaker equities took a toll on the cotton market. After climbing to its highest level in almost a year, the Dow Jones Industrial Average slipped last week, dragging cotton prices lower. Weaker commodity prices, a stronger dollar, and lower stock prices together cast a pall over the cotton market, helping drag every contract month for the next two years lower for the week.

Fund selling also contributed to weigh on cotton prices last week. Mirroring the rise in cotton prices over the last year, index funds’ net position rose to 75,219 contracts a week ago, the highest in twelve months. This left the market vulnerable to a setback that we suggested here. Accordingly, last week’s fund selling drove this net position lower to 74,741, prompting the exit in the market late in the week.

Weather has turned much more favorable across the U.S. cotton belt in recent days, improving the yield outlook from earlier in September. While the Delta and areas of the Southeast received heavy rains over the previous two weeks here, conditions turned drier this weekend and are expected to remain mostly dry for the week. The forecast for the next few days here has the Delta and Southeast warming up and drying out, which should promote boll opening and early harvesting. In West Texas, warmer, sunny conditions will prevail this week. While the recent deluge in rains slowed the development and harvesting of the crop, the warmer, dry days this week will be welcome across the Belt.

Weaker technicals also pressured cotton prices lower on the week. By climbing to a new high only to falter to a low by the end of the week sets up a bearish outside range reversal to the downside and hints at additional selling early this week. A hook reversal late in the week added to the bearish sentiment. And after signaling overbought conditions by breaching the critical 70-level on the RSI late the week before, lower prices reduced this indicator to a more moderate range. The market has been due for a correction, and last week's activity seemed to show just that.

Weekly Commodity Market Recap: Cotton

Cotton futures continued their impressive move higher last week on new bullish fundamental and technical signals, with Nearby prices rising for the third straight week to the highest close in more than a year. The most-traded December contract extended its streak of daily gains to twelve straight days, the longest streak in the contract’s life. Last week’s strength in the cotton market came from both internal and external influences. Worries over crop prospects in the U.S., China, and the Indian subcontinent combined with a weaker dollar and firmer stock market helped buoy prices. Rainy weather in the Delta and Southeast here are raising yield and especially quality concerns for the U.S. crop. Similarly, too much rain in Anhui here and Shandong here are suspending cotton procurement and likely to negatively impact crop yield in these key Chinese provinces. Conversely, a premature end to an already lackluster monsoon in India here prompted the USDA recently to pare back its forecast for the Indian crop by one million bales, limiting output in the country that plants more land to cotton than any other. And extensive damage from insects and leaf curl virus in Pakistan here are likely to prompt increased need for foreign cottons in the world’s third-largest import market in coming months. These bullish fundamental signals helped push futures prices on every contract month higher last week, with the Nearby closing at 63.18 cents per pound, its highest finish since September 2008.

Outside influences also are helping support cotton prices. Since reaching a near-term high in March, the dollar remains on its slippery slide, falling against a basket of currencies. The U.S. Dollar Index closed down last week for the third straight time, falling to 76.67, its lowest close in more than thirteen months, driving commodity prices higher.

Mirroring similar relationships noted in other commodities, cotton is also enjoying a rebound in prices from the lift in equities. Since reaching a near-term low six months ago, the Dow Jones Industrial Average closed up again last week, reaching 9,838, the highest point in almost a year. This bottom, inflection point, and subsequent rise mirrors a similar trend in Nearby cotton prices. Several technical indicators—particularly the RSI—are showing overbought conditions. And with a global stocks-to-use ratio likely to be only modestly tighter from last year, we are not confident the market can justify prices much above these levels. Accordingly, we look for prices to ease in the near term as harvest reports begin to accumulate over the next month.

Weekly Commodity Market Recap: Cotton

Last week’s cotton market saw Nearby ICE prices climb for the second straight week as more signs of improving demand are emerging, but an unimpressive WASDE report from the USDA, better yield prospects in several countries, and seasonal pressures may temper price gains in the near term. Nearby prices on the ICE Futures U.S. exchange rose late in the week for the ninth time in the last eleven sessions, trading over 60 cents for the first time in almost a month. Similarly, most-traded December closed up for the tenth time in eleven days, finishing the week at 61.24 cents per pound, the highest close since August 13.

Hints at improving demand are taking root around the globe, buoying price. China’s Keqiao Textile Index—a gauge of textile and fiber prices—rose for the fifth time in six weeks last week here as traders are becoming more confident of an improving outlook. August yarn production in China—a proxy of cotton mill usage—rose 12.7% from a year ago to 2.1 million tons, extending its streak of gains. Further downstream, retail apparel sales rebounded in a number of markets, supporting the gains in textile output. France, Australia, Brazil, and Germany all reported improved consumer demand for clothing in the latest month. While we expect gains in retail demand to remain tepid in coming months, we look for the improved demand to spread to more countries as markets rebound from a tumultuous last year.

At the same time, supply-side signals may hinder the continuation of the recent streak of firmer prices. Trading activity last week saw the latest release of supply/demand forecasts from the USDA, a report generally viewed as neutral to the market. In the U.S., anticipated higher production and exports offset one another, resulting in no net change in expected ending stocks in 2009/10. But more recently, continued downpours across much of Texas are likely to boost yield potential around Lubbock in coming weeks. Globally, a million-bale decline in Indian production and no sizable change in demand tightened the anticipated world stock-to-use ratio as we expected here. Lastly, seasonal harvest pressures will likely start weighing on the market soon, particularly if crop conditions continue to improve. For these reasons, we not as confident that the streak of steadily higher daily closes will persist for another week as boll opening accelerates and harvest commences.

Weekly Commodity Market Recap: Cotton

After retreating for three straight weeks, cotton prices managed to post a modest rebound last week, buoyed by a weaker dollar and indications that consumers might be set to start shopping again as the holidays approach. But supply-side pressures on the crops in major producers may limit this bullish sentiment in coming days as the market awaits the newest crop report from the USDA later this week.
Cotton prices extended their gains late last week on the back of a weaker dollar. Since finishing last week near the low end of its recent trading range, Nearby cotton futures are up six of the last seven sessions, closing last week at 57.53 cents per pound. Despite losses last week in grains, a declining dollar continues to support cotton prices. The greenback slid for the seventh time in nine weeks, threatening to fall to its lowest level in a year. The Dollar Index on ICE Futures U.S. eased to 78.14 Friday as equity markets rose on speculation the global recession is easing, sapping demand for the currency as a haven. Cotton prices’ negative correlation against fluctuations in the dollar has been particularly impressive over the last year and a half, hinting that if this relationship persists, there may be more upside potential for cotton in coming weeks.



Adding to this bullish support are indications that consumers might be preparing to start shopping again, just in time for the holiday shopping season. Although sales were down again in August at most U.S. apparel retailers here and the unemployment rate rose to a 26-year high here, they were not as bad as expected, putting some tentative hope in the market. However, we are not as optimistic, and look for same-store sales at most clothing retailers to continue to post losses—albeit at a slower rate—in coming months, with comps roughly flat by Christmas.
On the supply side, the market is still waiting for a better indication of this year's crop in the world’s largest cotton-producing markets. The U.S., India, and China each have had some challenges this year, but have managed to wriggle through them without noticeably large problems resulting. South Texas cotton remains parched, with total agricultural losses in the state here approaching a record $4.1 billion. Some eastern provinces in China saw damaging wind and rain from Typhoon Morakot here. And India received unimpressive monsoonal rains earlier this summer, only to enjoy late-season onset of ample precipitation here. However, the stress put on these crops, mostly due to swings back and forth from very dry to very wet conditions, could end up causing lower yields. Traders will likely be hesitant to carry prices strongly higher or lower until they get a better idea of the crop size in the latest USDA report due at the end of the week.

Weekly Commodity Market Recap: Cotton

New York cotton futures finished their third straight week of declines on cues from outside markets, falling to the lowest weekly close in more than two months. This marked the third consecutive week of lower closes, the longest such streak since a four-week losing stretch that ended March 6.

Nearby prices closed Friday at 56.30 cents per pound, hampered by weaker signals from traders and declines in outside markets. First, the weekly Cotton on Call position report from the CFTC showed a decline in total unfixed call sales to 44,188. This came primarily from the most-traded December contract, where unfixed call sales retreated 533 contracts from the previous week’s record high to 17,253.



















Also, the latest spec/hedge report from ICE Futures U.S. added to the glum mood over the market last week. The spec/hedge report for the week ending August 24th showed speculators reduced their net long position from 12.2% to 8.7%. Overall spec longs likely sold their positions to the trade, as spec longs reduced their position by 6,057 contracts to 49,476. Finally, the latest net futures position from the CFTC’s Commitments of Traders report dipped to 24,004 contracts Friday, its lowest weekly close in almost two months. All three gauges substantiate the decline in futures in the latest week.



Outside markets also weighed on cotton prices in recent days. Wheat and corn prices are flirting with multi-month lows, while synthetic fiber prices in China are swooning from near-term highs set a month ago. Nearby wheat futures fell to $4.60 per bushel last week, down each of the last three weeks in step with lower cotton prices. Corn prices fell for the seventh time in the last nine weeks, down to $3.21 per bushel. Even prices of synthetic fiber feedstocks eased in the last week, dampening prices for purified terephthalic acid (PTA) on China’s Zhengzhou Commodities Exchange. Economically speaking, PTA is a substitute good for cotton, meaning fluctuations in prices here tend to mirror changes in cotton prices. As a derivative of oil and an ingredient in polyester production, lower PTA prices point to lower cotton prices. PTA futures dipped for the second straight time last week, down to 7,684 yuan per metric ton (51.0 cents per pound). Despite the lower close in cotton prices this week, we are still friendly to this market, and believe we are near the bottom of our range.

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.

Weekly Commodity Market Recap: Cotton

After retreating the previous week in response to overbought technical and fundamental signals, last week’s market posted an impressive rebound, but darkening fundamental clouds this week suggest prices may ease lower in coming days. The futures market jumped 260 points last week, driven higher by a near limit-up move Monday. This jump came in concert with a strong surge from most other key commodities, as the dollar fell to its weakest point this year. Prices Tuesday and Wednesday remained range-bound, only to see a re-strengthening dollar Thursday push futures lower. Spec buying Friday helped the market reach just below 62 cents per pound, the highest level in half a month, but profit taking Friday eased gains, with the week closing at 60.53, just below Tuesday’s close.

Looking to the new week, all eyes will turn to the forthcoming USDA supply and demand report due to be released Wednesday. We anticipate the USDA will turn more bearish in its next report, with looser fundamentals expected in the U.S. and worldwide. We look for the report to show a modest increase in the anticipated size of the U.S. harvest, as steady improvements in the condition of the crop across the cotton belt over the last month boost the outlook. Evidence shows half the U.S. crop is in good or excellent condition, up each of the last four weeks. After averaging 13.25 million bales each of the last three months, we look for the USDA to raise the production forecast to 13.6 million, as higher anticipated yields in the Midsouth and Southeast offset crop damage from exceptional drought conditions in South Texas.
We remain pessimistic toward the prospects for U.S. mill use in 2009/10. While economic activity is likely to rebound in the new marketing year, we are not confident that mill demand for cotton will remain essentially unchanged from the 3.55 million bales recorded this year. We look for continued consolidation in the industry—albeit at a slower pace—and expect the August forecast to ease modestly to 3.45 million bales.

Foreign demand for U.S. cotton is likely to ebb in the new marketing year, suggesting lower U.S. exports. Already, the combined volume of carryover sales and sales for 2009/10 is less than at this point in each of the last several marketing years, suggesting exports next season may be lower. We expect U.S. cotton to maintain its one-third share of global exports, implying shipments may stay roughly flat from July at 10.2 million bales in August. On balance, higher production and modestly lower demand for U.S. cotton is likely to boost anticipated ending stocks. We look for the USDA to revise its August projection for U.S. ending stocks for 2009/10 to 5.9 million bales. Even so, this would still remain the lowest in five years.

Worldwide, changes in global fundamentals are likely to mirror the expected changes in the U.S. We expect the USDA to modestly increase world cotton production, as improved prospects in the U.S. offset a dimming outlook in India. A lackluster monsoon here continues to sprinkle insufficient rains on most of the country, hindering crop development in a country that plants more land to cotton than any other. We look for the USDA’s August forecast to increase to just over 106.0 million bales.

Mill demand for cotton remains lacking in most of the world. After reducing its forecast in June and July, we believe the USDA forecast still remains overstated. While consumption may not dip as low as in 2008/09, we look for slower growth in 2009/10 than currently projected and expect the August forecast to ease for the third straight month, dipping another 600,000 bales to 112.0 million. Similar to the U.S., higher supply and lower demand forecasts imply higher ending stocks. At 58.5 million bales, our expectation would mark the third straight increase from the USDA and the third straight month of gradually looser fundamentals in the market.
The big news last week was the announcement that two of the world’s largest cotton merchants planned to merge, creating a cotton trading behemoth that would sell one in ten bales grown around the world. Thursday Allenberg Cotton Company confirmed rumors that it planned to acquire Dunavant Enterprises Inc. The deal could align two of the world’s leading cotton merchants into a behemoth organization responsible for marketing one in ten bales grown around the world. Cordova, Tennessee-based Allenberg, the largest in terms of both revenue and volume, oversees shipments of more than seven million bales U.S. and foreign growths, with revenues of roughly $2.0 billion. Privately-owned Dunavant handled six million bales last year, with revenues at roughly $1.5 billion. Together, the combined organization could market over thirteen million bales, or more than one-tenth of the global cotton crop.

Weekly Commodity Market Recap: Cotton

After strengthening for four straight weeks, cotton prices retreated last week, as bearish fundamentals in the U.S. and abroad chased off the bulls that had dominated the market over the last month. Domestically, crop conditions generally tended to improve last week, as key cotton areas of the Southern U.S. largely experienced timely rains last week. Globally, India’s delayed monsoon finally kicked into gear, just as the monsoon season reached its typical seasonal peak. The past several days marked the first week this year in which monsoon rains exceeded the norm, brightening the prospects for late-planted cotton in the country that plants more land to cotton than any other. Similarly in China, timely rainfall and normal hot weather in Anhui and Hebei is benefitting cotton in both provinces, hinting at improved yield prospects in the world’s largest cotton-producing country.

The demand side also saw the bears dominating the news in the last week. U.S. mill demand for cotton continued its long-term slide, with annualized consumption in June falling 26.3% from a year ago to 3.22 million bales, down for the 46th time in the last four years. June cotton fabric exports from both China and Pakistan also shrank, extending declines in both markets and countering tentative ‘green shoots’ of improving demand in yarn output in both markets. Further downstream, the week brought reports of a record collapse in Peruvian apparel exports and the biggest drop in years in clothing shipments from Sri Lanka. In turn, these markets responded to sinking import demand reported in key retail markets last week, including the U.S. and Canada.

For the week, Nearby cotton traded lower three of five days, shedding 471 points on the week. Technical action suggests that the market may have established a near-term top, with cotton completing a weekly outside-range reversal to the downside late in the week. Unfixed on-call sales in December cotton expanded 1,018 lots to 16,859 during the week ended last Friday based on revised data from the prior week, while unfixed call purchases increased 338 lots to 8,876, according to the latest Commodity Futures Trading Commission data. The ratio of potential buying to potential selling edged fractionally higher to about 1.9:1 and the net call difference of 7,983 lots comprised a marginally higher 7.6 percent of December's rising open interest.

Looking ahead to the coming week, the calendar is relatively light on reports likely to directly impact the cotton market. As we approach the end of the marketing year, exports remain underestimated, something we have long argued. But improved weather developments this week could easily counter any bullish sentiment from modestly higher revisions to exports. The dollar is likely to have the biggest impact on the market in coming days, as the government will flood the Treasury market with a record amount of new debt this week, topping $200 billion. Already, the dollar is near its lowest level this year on speculation the global economy is shaking off the worst recession in decades. A weaker dollar could drive commodities—including cotton—higher, reversing last week’s swoon, or a rebound in the greenback could extend the dip in cotton prices, fortifying the near-term resistance set at 63 cents per pound last week.

Weekly Commodity Market Recap: Cotton

Cotton prices edged higher for the fourth straight week, finishing Friday at 62.10 cents per pound, the highest weekly close since September. Signs from both the fundamental side and trading side of the market support the recent firming in price. While cotton textile production in India, Turkey, and the U.S. remains lackluster, signals in China continue to point to a rebound in downstream demand for cotton. Total yarn production rose to a record 2.2 million metric tons in June, the 22nd year-over-year gain in the last two years. Further downstream, cotton fabric production rose to 2.9 billion square meters in June, also a record. On the supply side, India’s delayed monsoon rains advanced in the latest week, but may be too late to justify such a high level of plantings forecasted by the USDA. Some analysts—including FCStone—believe Indian production this year will fall well short of the 25 million-bale forecast from the USDA. In the U.S., exceptional drought conditions intensified across southeastern Texas in the latest week, withering crop prospects in the Coastal Bend region, something we have long cautioned about.

Spec and fund buying are also suspected as a big influence behind the recent advance in futures prices. Since reaching a new-term low of 105,969 contracts in open interest in late June, open interest in cotton futures climbed more than 20,000 contracts since then, up 18.9%. While open interest of 126,038 contracts pales in comparison to the 302,000+ contracts of open interest in early March 2008, an increase of nearly 20% in open interest in just sixteen sessions indicates that spec and fund money is slowly but surely returning to the cotton market. The recent run-up in U.S. futures prices mirrors the gains witnessed in China. Nearby cotton on the Zhengzhou Commodity Exchange closed the week at the equivalent of more than 90 cents per pound, the highest level in months. The bulls’ argument also points to a falling dollar, coupled with stronger crude oil, gold, and grains prices.

Even so, all these bulls gathering on the bandwagon can tip the market into a correction. While the technicals are not screaming for a correction yet, the USDA threw cold water on the market recently by boosting anticipated global ending stocks by 1.4 million bales. And prospects for a rebound in global mill demand remain based on the outlook for an improvement in the global economy, something we believe will be sluggish in coming, with risks weighted to the downside.

Weekly Commodity Market Recap: Cotton

Weekly nearby cotton prices on the ICE Futures U.S. closed Friday at their highest levels in ten months, shrugging off the effects from a mildly bearish—but expected—USDA supply/demand report, focusing instead on mounting concerns over delays in the Indian monsoon, sweltering 100+ degree weather across much of Texas, and persistent rumors of new forthcoming import quotas in China. This marked the third straight week of higher closes in futures prices, with the week finishing at 60.39 cents per pound. After closing lower the first three days of the week, Nearby prices roared ahead Thursday and Friday, up a combined 339 points. Most-traded December pierced a six-week high of 62 cents Friday and is poised to challenge resistance below 63 cents this week, the highest point in ten months.

Optimism earlier this season for record yield and production in India is fading with each passing day, as concern grows over a lackluster monsoon season. After its earlier-than-normal arrival, progress of the monsoon across the country has been slower than trend, with most parts of central, north, and northwestern India yet to receive sizable rains. Over the last two months, daily rainfall has only surpassed the average daily rainfall totals nine days, with totals not reaching half of the normal amounts most days. The window of opportunity for planting the Indian cotton crop will close this week, squelching early optimism for hearty yields and adding to the bulls’ fundamental argument for tighter global stocks.

In the western hemisphere, weather issues also are adding to concern about the size of the crop. Cotton areas across most of southeast Texas continue to experience exceptional drought, and no measurable rain is forecast for the coming week. For the ensuing five days (July 14 – 18, 2009), below-normal precipitation is again expected across Texas, hinting at prospects for dismal yields in the area. Without replenishing rains soon, it is doubtful that there will be sufficient water to finish the cotton crop in the Coastal Bend region this season, reinforcing the bullish sentiment.

Finally, demand-side issues are reinforcing the bulls’ position. Persistent rumors continue to circulate of an imminent release of additional import quotas in China. These rumors have loomed over the market for several weeks, seeming to gain additional traction over time. Now, some Chinese mills are confirming that they received additional import quotas. With the new quota estimated to be about 400,000 metric tons (1.8 million 480-lb. bales), this could provide a boost to early-season U.S. exports in coming weeks.

This outlook for a weaker Indian monsoon, higher temperatures in southeast Texas, and new Chinese import quotas enabled the market to rise again in the latest week, effectively ignoring bearish sentiment from the USDA’s latest WASDE report.

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

For companies thinking cotton is just cotton, the market has some surprises in store. Although the overall quality of cotton globally may be increasing, how the improvement is occurring remains surprising--long staple cotton has expanded to become the dominant type of quality cotton produced today, while at the same time these gains have translated into a decline in Pima and other extra-long staple varieties, and the traditional lower end of the market, generic upland cotton. So what had been the middle of the market has now become more important than ever in understanding the global cotton business.

Indeed, what are the ramifications of such changes? Will cotton become cheaper or more expensive? What about supply versus demand? Will there be shortages or new market opportunities?

To help answer these and other questions, FCStone Fibers & Textiles announces a new multi-client study entitled "The Future of High Quality and Branded Cotton".

With particular focus on China, India, the U.S. and Egypt, this study will examine global supply and demand trends for the major varieties of cotton, the attitudes of buyers and sellers of cotton internationally and the implications these trends and attitudes will have on merchants, mills, and retailers throughout the entire textile supply chain.

FCStone Fibers & Textiles proposes to undertake this essential strategic study for delivery to subscribing clients by August 31st. Please click here to download a copy of the study 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 Recap: Cotton

After gapping higher the previous week, the cotton market rose further during the holiday-shortened week, closing at its highest weekly close in two months. Little major fundamental bullish news accounted for the gain, aside from Texas weather concerns, increased speculation about new forthcoming Chinese import quotas, and a strong weekly export report.

The week began quietly, with many traders either on vacation or on the sidelines in anticipation of the pending USDA Prospective Plantings report. Reports from India indicated the late monsoon had finally begun in earnest. Monday saw rainfall amounts surpass the normal daily mean rainfall for the first time in a month. While the cumulative progress of this season’s monsoon remains well behind trend, the intensification in precipitation was a welcome sign across the country. Nearby cotton prices in the U.S. closed up a modest 11 points on the day.

Tuesday, the cotton plantings report from the USDA was within trade estimates, with total cotton acreage estimated at 9.05 million acres, down 4% from last year. While this level is mildly higher than forecasted in the prospective plantings report issued in March, the number surprised few. Nearby futures traded in a 300-point range on the day after the release, but settled up only 63 points from the day before.

Wednesday saw a dramatic limit-up move, but appeared based on little fundamental news. The strong move up came on increased volume, and all major moving averages were violated, as was resistance at 59.71. Aside from developing crop progress and condition concerns in Texas, there seemed little to drive the market higher. At the start of last week, less than one-third of total cotton acres across the cotton belt were at or beyond the squaring stage, the slowest pace of progress for this week in more than a quarter century of record keeping. In particular, the Texas crop is hindering the advancement of squaring across the Belt. While the development of the crop remains behind trend, the condition of this year’s cotton crop is eroding over recent weeks and is lagging this point last year. As of last week, only 42% of the crop was estimated to be in good or excellent condition, versus 44% a week ago and 45% at this point last year. Again, Texas is to blame, dragging down the national average. Just 28% in this state is listed in good or excellent shape, the fourth-worst share for this week in over twenty-five years. Without acceleration in the progress of the Texas crop or improvement in the condition of the crop, it may be difficult for the outlook for this season’s crop to improve markedly in coming weeks. With little other major fundamental news to drive the market, nearby prices closed up 300 points at 58.63 cents per pound, the highest close in a month.

Thursday, net U.S. export sales came in at the top of the range of reported expectations and shipments easily surpassed the weekly average needed to achieve USDA's 2008-09 forecast, echoing our outlook over the last few months that the export forecast remains too low. While China remained the largest destination for shipments last week, volume to Mexico jumped to 46,494 bales, the highest in more than a year. Cotton prices closed the day and week at 59 cents, up 37 points from Wednesday and up 411 points from the week before.

After closing higher every day last week, cotton reached its highest weekly close in six weeks, but still does not appear technically overbought. Despite the recent volatility, we continue to see a market confined to a broad range between 55 and 63 cents. Summertime trading is always accompanied by weather scares and this July should be no exception. Whether late monsoons in India, dryness on the North China Plain, spotty rains in West Texas or early hurricanes in the southeast U.S., there is always weather to keep us company—and on edge—during July and August. The fundamentals of supply and demand appear tighter going forward, just not yet.

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

For companies thinking cotton is just cotton, the market has some surprises in store. Although the overall quality of cotton globally may be increasing, how the improvement is occurring remains surprising--long staple cotton has expanded to become the dominant type of quality cotton produced today, while at the same time these gains have translated into a decline in Pima and other extra-long staple varieties, and the traditional lower end of the market, generic upland cotton. So what had been the middle of the market has now become more important than ever in understanding the global cotton business.

Indeed, what are the ramifications of such changes? Will cotton become cheaper or more expensive? What about supply versus demand? Will there be shortages or new market opportunities?

To help answer these and other questions, FCStone Fibers & Textiles announces a new multi-client study entitled "The Future of High Quality and Branded Cotton".

With particular focus on China, India, the U.S. and Egypt, this study will examine global supply and demand trends for the major varieties of cotton, the attitudes of buyers and sellers of cotton internationally and the implications these trends and attitudes will have on merchants, mills, and retailers throughout the entire textile supply chain.

FCStone Fibers & Textiles proposes to undertake this essential strategic study for delivery to subscribing clients by August 31st. Please click here to download a copy of the study prospectus. If you have any questions regarding this study, please contact Saira Farrukh (saira.farrukh@fcstone.com) or Fred Hardin (fred.hardin@fcstone.com).