After falling below 77 cents on Nov. 22, prices (Mar14 futures) have attempted a recovery. This is welcomed news. Prices fell 170 points on Nov. 22 but then advanced 179 points on Nov. 25 and another 91 points on Nov. 26 to bring us back above 79 cents. Prices closed the week at 79.35 cents/lb.
With this “recovery,” itΆs hopeful that the recent downturn is over and a new floor of support is now in place around the 77 cent area March futures. If this floor holds, a price range of 77 to 82 cents can be expected.
Prices have begun to strengthen on the basis of strong US export sales at these price levels and reaction to China beginning sale of cotton from its reserves. As expected, China began auctioning cotton from its huge national reserves on Thursday and this will continue through August 1. Sales were only 25% of the available amount on Thursday and 59% on Friday. Chinese mills have complained about the quality of the fiber and about the price–which is significantly above the price paid for competing imports from countries like India and the US.
US export sales have been good with China being a major buyer. Initially, market concerns over the pending sale of Chinese stocks were among the reasons for the recent downturn. China, however, still continues to buy (import) cotton despite the availability of stocks and export supplies in the rest of the world (ROW) are relatively low. As long as Chinese mills are allowed to do so and as long as export sales are good, the new support level should hold. Chinese sources report that the China crop is expected to be 30.7 million bales compared to the current USDA estimate of 32.5 million. This should add further support to prices.
New crop (Dec14) futures prices are currently around 77 cents. With the recent developments mentioned above, there is suddenly beginning to be some concern about reduced cotton acreage in 2014. Clearly, current prices at less than 80 cents will not likely attract acreage. If more cotton acreage is needed/warranted, the market (Dec14) will have to improve enough to bid it in. Few if any growers are likely going to begin taking price protection at less than 80 cents.
New USDA numbers will be out on Dec. 10.