Taking a breather from the week’s rally, cotton futures prices on the Intercontinental Exchange (ICE) ended the session mostly higher on Thursday. The rally began on Monday as cotton futures bounced back from 16-week lows. Tuesday, the nearby contract vaulted to the 300-point trading limit as bullish government data, coupled with a weaker dollar, sparked buying.

USDA raised its outlook for 2009-10 U.S. cotton exports to 12.0 million bales, one million bales more than the previous month's figure. The export adjustment was regarded as very bullish by market observers.

USDA’s 2009-10 U.S. cotton supply/demand estimates also showed lower ending stocks and higher prices relative to last month. Production and domestic mill use were unchanged. New export sales of more than 1.8 million bales were made in January, USDA noted. Led by a drop in the New York futures market, recent lower prices for U.S. cotton combined with strong foreign mill demand have boosted export prospects.

“Of course, the one-millionbale increase in the U.S. export forecast easily stole the show this week,” a trader said. “That change rippled through to ending stocks which are now forecast at 3.3 million bales. If accurate, the resulting stocks-to-use ratio of 21.4 percent would be the lowest level since 1995-96.”

This month’s world cotton 2009-10 forecast showed higher beginning stocks largely offset by higher consumption. Beginning stocks were raised in China due to modest reductions in estimated consumption for marketing years 2007-08 and 2008-09.

World production was virtually unchanged while a higher forecast in 2009-10 world consumption included increases for China and India based on a stronger estimated recovery in demand than previously anticipated.

Total world trade was left virtually unchanged as higher U.S. exports were mainly offset by a reduction in exports by India. World ending stocks were raised marginally from last month.

“USDA surprised the market with a one-million-bale increase in U.S. export sales in its February supply/demand report even as most traders suspected they would have to raise exports sooner or later,” an analyst noted. “What will be interesting to see in the coming days is whether or not demand is negatively impacted by the run up in futures prices.”

In the meantime, USDA reported net export sales of 2009- 10 U.S. cotton totaled 454,800 bales in the week ended Feb. 4. The figure was 12 percent lower than the previous week but up three percent from the four-week average. Major buyers included China, Mexico, and Turkey. Net sales of 34,000 bales for delivery in 2010-11 were primarily for Colombia.

Export shipments of 173,200 bales were down 24 percent from the previous week and eight percent from the four-week average. Primary destinations were China, Turkey, and Mexico.

Sales also blasted higher on the spot cotton market as growers in Texas, Oklahoma, and Kansas sold a healthy 39,137 bales online in the week ended Feb. 11 compared to the previous week when 7,282 bales were traded. Prices received by producers ranged from 54.51 to 66.19 cents per pound versus 59.20 to 62.28 cents per pound one week earlier.

“Sales increased on the spot cotton market because ICE futures prices moved up to a level where the buyers could pay the producer’s asking prices for cotton and still hedge at a fair basis level,” a local analyst explained.