Cotton prices have firmed up toward the high end of the recent, relatively tight range. In an environment in which many of the commodity bull markets – such as some of the grains and softs – may be unraveling, cotton has been a standout. And on the surface, its resilience is counterintuitive.
The Dec. 11 monthly USDA crop report was actually friendly for cotton prices. Ending stocks for 2011-12 were revised down by 450,000 bales. A small increase in the 2012-13 production estimate was overshadowed by an even larger increase in consumption. As a result, the estimate for 2012-13 ending stocks was revised downwards by 630,000 bales, to 79.64 million bales, or 74.8% of usage, down from last month’s estimate of 75.49%. However, that figure still represents burdensome inventories. We are still much higher than last year’s 67% of usage and dramatically above the 10-year average of 51%.
Market participants have had the opportunity to digest all the information regarding the size and quality of the new crops, which must last through to Autumn 2013. In addition, they’ve had a chance to contemplate the monstrous global stockpiles. And yet the market has built a base that stretches back to early summer and seems to defy the implications of the supply/demand fundamentals.
U.S. exports have been steady, but not overwhelming. Average weekly commitments since the beginning of November have been 338,000 bales, which is above average for this time of year. Total year-to-date commitments, however, stand at 7.8 million bales, down about 20% from last year at this time. Last year there were a few weeks of extraordinary sales, and then the market sputtered, with little new-sales activity for the balance of the marketing year.