Cotton Market Weekly

Trading was thin and choppy with most brokers on the sidelines in advance of the Christmas holiday, but cotton futures on the Intercontinental Exchange (ICE) managed to close marginally higher toward the end of the week. Most in the industry do not expect market interest to pick up until after the new year.

"The lack of news expected through the remainder of the week and next week likely will reduce cotton futures action to a slow crawl," a market observer said.

Reports this week that China will increase government stocks and, at the same time, is trying to boost economic activity by lowering interest rates were somewhat friendly for a cotton market in need of increased demand. The rate cut in China was the fifth in recent months.

World demand for textiles and clothing, China's largest source of exports, has plunged as the global economy slid into a recession. After slumping prices threatened to reduce farming incomes and hurt planting intentions for the upcoming year, the world's largest cotton producer now plans to boost government procurement of cotton to more than half of the country's 2008 crop.

The outlook for the 2009-10 season shows cotton acreage in China could drop by 15 to 20 percent as farmers there complain of rising costs and are very disappointed with the prices they receive for their seed cotton. Food crops seem to be a distinct alternative. Traders hope the additional cotton purchases by the Chinese government could help stabilize global prices, especially after futures on the ICE fell to a six-year low last month.

In other news, the amount of cotton utilized in the United States continues to plunge. According to U.S. Census Bureau data compiled by the National Cotton Council, U.S. textile mills used cotton at a seasonally adjusted annualized rate of 4.02 million bales in November, compared with a downwardly revised 4.28 million in October.

"As really pathetically poor as this rate is, it is actually a tad better than the 3.84 million bales private surveys had indicated were possible," an analyst said.

Seasonally adjusted daily cotton consumption for the four weeks from Nov. 2-29 totaled 14,828 bales, down from 15,986 in October, the U.S Census Bureau reported. Consumption also was down from the rate of 17,719 bales in November 2007.

Meanwhile, a major newspaper ran a story this week saying U.S. retailers are facing what may be the worst Christmas sales season in four decades. The International Council of Shopping Centers projects that November-December sales may fall as much as two percent, which compares with a previous projection by the group of a one percent drop. Market watchers say same-store sales currently are on track to experience the largest drop since at least 1969. Heavy snowfall in some areas of the United States this week is expected to exacerbate the situation.

Closer to home, spot cotton sales in the holiday shortened week ended Dec. 24 were slightly lower as producers in Texas, Oklahoma, and Kansas sold 6,076 bales online compared to 7,123 bales the previous week. Average prices received by producers ranged from 39.08 to 42.90 cents per pound versus 35.82 to 42.58 cents per pound one week earlier.