KANSAS CITY (Dow Jones)--Cotton futures continue to trade near two-year highs
on recent bullish exports, tight stocks and ongoing crop worries in Pakistan.
Cotton for nearby October delivery rose 0.34 cent Monday, or 0.38%, to 89.37
cents a pound on ICE Futures U.S. Most active December added 0.36 cent, or
0.42%, to 86.43 cents.
Friday's high of 87.30 cents on December cotton is the strongest price for
the contract since Sept. 4, 2008. Cotton futures have rallied nearly 20% since
July 20.
Cotton prices are underpinned by strong U.S. export sales, the tightest
global ending stocks in 14 years and worries over crop losses in Pakistan,
analysts said. Global consumption continues to grow and textile mills scramble
to fill immediate needs. While the U.S. economy remains on fragile footing, the
recovery last year from the global recession has been a boon for cotton demand.
Robust demand has been underscored by the surge in U.S. cotton exports. Net
sales for the week ended Aug. 12 had marked a high for the 2010-11 marketing
year. Sales reported just last week jumped another 6%.
"Export sales figures...were very impressive and I guess we're expecting
quite a bit of a supply strain in the short term because of that," said Luis
Rangel, vice president for commodities derivatives at ICAP Futures in Jersey
City, N.J.
The most recent leg of the rally began August 12, when the U.S. Department of
Agriculture raised its projection for U.S. exports to 15 million bales from its
July estimate of 14.3 million. The U.S. is expected to ship more cotton from a
crop that is projected to be 52% larger than last year's, owing to increased
planted area and nearly ideal weather.
Last year's cotton crop was hurt by wet harvest weather in the Mississippi
Delta and the Southeast. Higher-than-normal abandonment rates in West Texas due
to a dry spring also cut in to production.
While high prices caused global cotton producers to plant more of the fiber
as consumption grew, stocks remained tight. The USDA on August 12 cut its
estimate of global stocks by 4.3 million bales, or 8.6%, to their lowest level
since 1996.
China, the world's largest cotton importer, is on track to buy even more
cotton to keep up with textile demand. The USDA raised its estimate for 2010-11
Chinese imports to 12.5 million, from a previous level of 11.65 million bales.
Devastating floods in Pakistan have ruined about 16% of the country's cotton,
government officials have said. Pakistan is the world's fourth-largest cotton
producer and is now importing the fiber from neighboring India to meet the
shortfall. India, the world's second-largest producer and exporter, is expected
to produce 26 million bales in 2010-11, as increased monsoon rains improve
prospects there.
The larger U.S. crop will help loosen supplies a bit, though increased
exports are seen pulling 2010-11 ending stocks down to 3.2 million bales, from
a previous USDA estimate of 3.5 million.
"If there's any hiccup globally, the U.S. doesn't have that much more cotton
to be able to satisfy demand," said Judy Ganes-Chase, cotton analyst and
president of J Ganes Consulting in Katonah, N.Y.
Cotton stocks in ICE-approved warehouses have been slashed to just 18,690
bales, from 1.08 million on June 2, meaning U.S. stocks are only 1.7% of what
they were in early June.
Most of the cotton from the 2009 crop has been sold and the market is waiting
for an influx in the autumn when the U.S. begins its harvest.
Cotton prices could rise further, given the bullish supply-and-demand
picture. December cotton could hit 95 cents in the next two weeks, said Rangel.