Bulls can breathe a little easier with todayΆs close, which showed no heavy follow-through selling from ThursdayΆs big hit. But there are still some worrisome mutterings erupting among traders.
At USDAΆs Outlook Conference Wednesday, analysts pegged upland cotton acreage for 2013 at 9.8 million acres. Adding in an estimated 200,000 acres of Pima cotton, that puts USDA at 10 million, down just 100,000 from our own current estimate and considerably higher than the forecasts down around 9 million from National Cotton Council and a well-known private firm based in Memphis. (If USDAΆs Mar. 28th Prospective Plantings Report shows cotton intentions close to this Outlook Conference estimate, it will be quite bearish for prices.)
Until I saw where USDAΆs analysts put cotton acreage for this year, I was starting to second-guess my own estimate currently at 10.1 million acres. But as noted last night, having been in the analytical/forecasting business for more than 35 years, I also have a healthy respect for whatΆs called in some circles “the law of contrary opinion.” By that I mean that when cotton farmers everywhere are being told of a huge drop in acreage coming this spring, the “contrarians” among them may well figure, “Well if everybody else is cutting back, maybe I shouldnΆt cut back so much after all.” Voila! ThatΆs where we get “surprises” in Prospective Planting reports.
Nonetheless, the “topping action” that led us to advise a little more sales coverage last week was pretty much negated this week with new highs for the new crop contract until the big setback Thursday. Weekly sales were down 8% from a week ago but up 10% from the 4-week average. Sales year to date are still on track to meet USDAΆs current forecast, which they just increased earlier this month, to 12.5 million bales. But until this week, sales were running well AHEAD of the necessary pace.
And even though China is sitting on an enormous “reserve” of nearly a 14-month supply equal to more than half of projected global ending stocks, itΆs of very low quality and Chinese mills are still importing U.S. cotton. Currently, global traders and merchants are treating those stocks as if theyΆre a “mirage” and “donΆt really count” against world stockpiles. The trouble we have is that these “phantom” stocks could be offered for export at the stroke of a pen in Beijing and futures would plummet.