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January 21, 2010

It appeared that four days of lower trading on the Intercontinental Exchange (ICE) was enough for cotton. Trade buying amid physical demand boosted ICE futures prices Thursday as a turnaround in the U.S. dollar took the lid off prices, traders said.

On Wednesday, cotton futures recorded a two-month low, but prices got a boost on Thursday from the abrupt weakness in the American dollar in the midst ofa proposal for new bank restrictions from President Barack Obama.

Meanwhile, USDA's export sales data was as strong as traders had anticipated. For the week ended Jan. 14, the department reported net export sales of 321,900 bales for delivery in 2009-10 were down 26 percent from the previous week but eight percent higher than the four-week average. China, Turkey, Thailand, and Mexico were the week's top buyers. Net sales of 13,000 bales for delivery in 2010-11 were for Morocco and South Korea.

Export shipments of 197,100 bales were up nine percent from the previous week and 53 percent from the four-week average. Primary destinations were China, Mexico, Turkey, and In- donesia.

Already, the U.S. has total cotton commitments of roughly 6.9 million bales on the books. "This represents 63 percent of the current USDA export projection with only 44 percent of the marketing year behind us," a trader said.

Meanwhile, sales were considerably lower on the spot cotton market as growers in Texas, Oklahoma, and Kansas sold 6,521 bales online in the four-day trading week ended Jan. 21 compared to the previous week when 13,141 bales were traded. Prices received by producers ranged from 57.90 to 62.40 cents per pound versus 61.68 to 65.30 cents per pound one week earlier.

Market observers now say the amount of cotton still available in the world market is quickly shrinking. The scarcity of cotton will remain a concern until the next crop cycle can offer supplies. While the Southern Hemisphere's cotton crop is important, it is not large enough to relieve the prevailing shortfall. As the planting period of the Northern Hemisphere approaches, the relative value of cotton versus the crops it competes with for acreage will have to be assessed. The first official indicator for U.S. production will be the government's planting intentions report set for release at the end of March.

Regardless ofU.S. planted acreage in 2010, the average cotton yield is likely to be higher than it was in 2009. The excessively wet weather across most of the Cotton Belt during harvest time in 2009 was damaging to the cotton crop in many areas and lowered yields considerably. Forecasters attributed the year’s unusually wet conditions to an El Nino weather pattern which history shows should not continue for a second consecutive year. Market observers also say the extreme cold conditions across the country in the winter of 2009- 10 should "put a large dent" in insect pressure in the season ahead. Not only would reduced insect pressure lower the cost of production in 2010, it also would incrementally add to yield potential as well.

Lower U.S. and world carryover stocks also should support higher cotton prices. The smaller 2009 U.S. cotton crop, coupled with crop setbacks in China, India, and Pakistan, have left a shortage of fiber.