September 17, 2009

The market was on a very impressive run this week as cotton futures on the International Cotton Exchange (ICE) closed higher 11 consecutive sessions and was higher 14 out of the last 15 sessions by Thursday. According to some sources, data would have to be traced back over 30 years to find a similar streak.

"It probably was a combination of factors that has led to the strong showing including a slightly tightening balance sheet, weather concerns, strong outside markets, a weakening U.S. dollar, and a lack of U.S. new crop cotton to hedge against," an analyst said.

A rather poor export sales report from USDA set the market up for another bout of the "Thursday effect" with prices initially reacting negatively but eventually finishing at higher levels for the day, sources explained. In the report, USDA said net export sales of U.S. cotton for the week ended Sept. 10 totaled 71,400 bales, down 49 percent from the previous week and 60 percent lower than the four-week average. Turkey and China were the main buyers for the week with Mexico lagging considerably behind but still in the top three. Net sales of 1,400 bales for delivery in 2010-11 were for Mexico.

Export shipments of 118,700 bales were down 48 percent from the week before and 34 percent from the four-week average. Pri- mary destinations were Mexico, China, and Turkey. Even though the figures are well short of the weekly averages of 176,310 bales in sales and the 198,104 bales of shipments needed to hit the current USDA 12.50-million-bale estimate, traders acknowledged it was not so bad considering futures were above 60 cents per pound for a good part of the week.

"Given the market's steady seven-cent climb over the past 15 trading sessions, it is understandable that export sales have started to fade," an observer explained. "Simply put, we are pricing ourselves out of the world market. Even though hand-to-mouth buying remains the predominant procurement style for spinning mills worldwide, 'hand to mouth' doesn't equate to 'hands over eyes' when it comes to pricing," he concluded. In comparison, sales increased in the spot cotton market during the week ended Sept. 17 as 5,787 bales were sold online by producers in Texas, Oklahoma, and Kansas compared with 249 bales the previous week. Average prices received by producers ranged from 52.25 to 54.80 cents per pound.

Meanwhile, as for the supply and demand aspects, the continuous rainfall over most of the Cotton Belt this week could mean that the already late crop will have difficulty advancing in maturity now that the overnight temperatures are dropping lower.

The Sept. 13 crop condition report from USDA showed other than being late to open bolls, the coming season's U.S. cotton crop is looking fairly good. Cotton in Louisiana, Mississippi, Arkansas and Tennessee is lagging behind the five-year average in percent of bolls opening. In Alabama, 24 percent of the crop is opening versus 60 percent, and in Georgia 32 percent of the cotton is open compared to the average of 53 percent. The key now will be how long the rainy period in the regions will last and what type of weather follows.

Overcast to partly cloudy skies ruled across most of Texas this week, and although rainfall during the week was considered beneficial in many dryland areas of the High and Rolling Plains, the moisture may have arrived too late to help plants that already have reached the cutout stage. A few more mature stands on the High Plains already have been defoliated, but widespread harvest aid chemicals are unlikely to be applied for several weeks. Final harvesting work continues sporadic in the Texas Blacklands due to the recent wet weather. Production has been less-than-desired, resulting in early gin closures. The harvest season is drawing to a close in South Texas as picking nears an end in the Upper Coastal Bend, and most gins have reduced their hours of operation.