After being down all week, cotton prices, basis the New York ICE December 2011 contract, managed to close marginally higher on Friday. Nevertheless, December futures settled the week at 97.19 cents, frightfully close to the 93-95 cent major support level.
December was off 484 points on the week. This represents the marketΆs latest attempt to hammer through that support level and bring about a test of the much lower 83 cent 12-month low. All attempts to move below this 93+ cent support level have previously been met with both physical and futures buying, thus holding the market above 93-95 cents. The longer term trading range between 93 and 107 cents still controls all trading. This weekΆs low point was 96.47 cents in Friday trading. Thus, on the two occasions when this weekΆs trading fell below 97 cents, the market was able to bounce back and settle above 97 cents.
The marketΆs perception of fundamentals has not changed in over two months (although the USDA estimates have changed). Thus, this attempt to push below 92 cents should find the going very difficult. While world stocks for the current season are measurably larger than in the 2010-11 season, the relative shortage of stocks held by the primary consuming nations will keep those countries bidding to increase their respective cotton inventories. In turn, this demand, even if for inventory building only and not for actual spinning for immediate consumption, will remove cotton supplies from the market, allowing demand to maintain upward pressure under the market.
Both cooperatives and merchants indicated that foreign mills were more aggressive this week in seeking bids. Too, as futures prices declined, cotton equities noted slight increases, an indication of increased business resulting from lower futures prices. Thus, demand continues to be uncovered with each downward step in cotton prices.
Export sales have reached 61 percent of the USDA export estimate. The five year average for this time of the year is only 47 percent. Thus, export sales for the 2011-12 season are well ahead of the annual pace and are on pace to be as much as 300,000 to 500,000 bales larger than the current USDA estimate of 11.5 million bales. Weekly sales for the week ending Oct.13-2011 were a net 59,300 RB of Upland and 800 RB of Pima. While these sales were a bit anemic, the sales were made when futures were trading near the 102-103 cent range. Sales for the coming week should be well ahead of that level.
This weekΆs lower New York trading was also associated with life of contract lows in the Chinese ZCE futures. While there is a very high correlation with respect to price movement between New York and the ZCE, it should be noted that the ZCE lows were made with very scant trading volume.
The stage is set for a test of the 93-95 cent lows, basis New York. However, look for that range to support the market.
