Bayer Cotton Weekly 4-23-2010
by O.A. Cleveland

Cotton prices jumped higher this week in the wake of the Indian Government's decision to suspend all cotton exports. India, the world's second largest producer of cotton and having the world's second largest domestic textile industry, has seen its production expand rapidly over the past five years. During this period the country has also become a major cotton exporting nation. With Indian cotton now locked away from the market, and coupled with the ever declining supply of U.S. cotton, international spot cotton prices have seen a substantial increase. The upward trend in prices continues-for both old and new crops.

The weekly export sales report was impressive. Yet, it was not as impressive as expected. Nevertheless, the market was most happy. Net sales of all cotton for the week ending 4/15/2010 were 367,600 RB. Upland sales totaled 347,100 RB while Pima sales were 5,500 RB. An additional 15,000 RB were sold for 2010-2011 marketing year delivery. China was welcomed back to the market with its purchase of 194,200 RB of Upland.

Various Chinese and U.S. based data sources are a bit at odds over the actual Chinese imports during the current season. One Chinese source expects the country to import some 500,000 bales more than either the National Cotton Council or ICAC. Should the Chinese agency be correct then the market will see another 300-500 point rally. Export shipments during the same week totaled 340,600 RB. Upland shipments were a yearly high of 331,300 RB. Pima shipments totaled 9,300 RB.

The U.S. Department of Commerce released its monthly domestic cotton consumption report on Thursday. During March, U.S. textile mills used cotton at the annualized rate of 3.3 million bales. The USDA forecast for the 2009-10 marketing year is 3.4 million bales. The annualized rate for the first eight months of the marketing year is 3.4 million, the same as the USDA estimate. The year ago March 2009 usage level was 3.2 million. Further, the February 2009 and April 2009 annualized usage rates were an identical 3.1 million bales. Thus, this adds to the growing body of evidence that the ten year decline in U.S. domestic cotton usage has bottomed.

This week's price jump created a new price objective for the old crop July contract. July's objective is now 88 cents and the market will try to push higher. However, any price slippage back to and/or below 84 cents will put the market back on defense and risk a quick drop back to near 81 cents. The price objective for the new crop December contract is 79 cents. However, don't let 78 cents pass you buy without additional price fixing.