Cotton prices took a couple of blows this week, but gainfully recovered for another two strong rounds on Tuesday and Wednesday before taking the knock out blow Friday, falling below 67 cent mat. More than the slightly improving cotton fundamentals, all the price damage can be attributed to the outside markets, especially the climbing value of the U.S. dollar. The dollar was higher all week and sent U.S. prices, not only for cotton, but for all commodities straight south.
The improving strength of the dollar makes all U.S. goods ands services more expensive to foreign buyer. Some 75-85% of all U.S. cotton is sold in the export market, thus making U.S. cotton higher priced than that from our competitors. If U.S. cotton is to remain competitive in its only true market, then its price must fall. Bring in the New York market…and cotton futures go lower to accommodate the higher price of the U.S dollar.
We have had this discussion for years, but for three decades (of my career) the primary market for U.S. cotton was the domestic market. Now we are well in the first decade of a near total dependence on exports, and guess what, that same discussion surrounding the value of the dollar is not only relevant, it is much-much more so because exports are the lifeblood of the U.S. cotton industry.
In conversation with my mentor this week, I commented on my difficulty of reading the cotton market from a fundamental perspective. Now remember, this is the guy that educates me-lately a very old 65 year old man-how to understand cotton. His sage advice to me was, “Good Luck.” Cotton fundamentals are a bit bullish in my eyes, especially compared to the current price level. Nevertheless, the market just moves further south.
You have heard all that “bullish” news from me for two months now. Yes, we did go higher, but have been lower now for three weeks. This week, the market did cross over to the technically bearish trading area and can easily trade down to 65 cents and then, heavens forbid, to 62 cents, basis March. The only good news about this sell off is that it met the first technical objective to the downside and can now get about its business of correcting to the upside. …And the market will correct…Write It Down!!
Week ending export sales were a marketing year high of 525,300 RB with Upland sales being 519,500 RB and Pima sales being 5,800 RB. Including 143,500 RB of Upland that were sold for 2011-2012 delivery, actual weekly sales climbed to an unbelievable 668,800 RB. The demand is there. The U.S. is on tract to sell between 2.25 and 2.5 million bales during January and February alone.
U.S. cotton growers intend to plant 10.1 million acres of all cotton in 2010 according the intentions survey conducted by the National Cotton Council. Upland intentions were 9.9 million acres and Pima intentions were 200,000 acres. This represents an increase of ten percent over 2009 plantings. Production was estimated at 15.5 million bales, assuming a harvested yield of 832 pounds. Prices are higher after the current correction.