By Dr. O.A. Cleveland
Professor Emeritus, Mississippi State University
Special for Bayer CropScience
After pushing down to near the 96 cent level by mid week, the New York December futures contract, aided by record export sales and improving economic news from both China and the U.S., jumped back above the dollar mark. As expected, last FridayΆs trading took December back below 99 cents. The money managers have taken a strongly conservative approach very late in the week as of late to prevent the ongoing Greek and Italian financial difficulties to wreck havoc to positions held over the weekend. This, in turn, makes any attempt to trade higher at weekΆs end almost impossible.
The market remains very much in the same trading range that has been in place since August. Seemingly bearish news cannot drag the market below 94-95 cents and bullish news cannot pull prices above the 103-105 cent level. Even last weekΆs million bale export sale could not pull the market but just some three cents higher. Look for this trading range to continue through the life of the December contract. Too, in the absence of new fundamental news the March 2012 contact will take on a similar trading range. For now the key support remains in the 93-95 cent range with strong resistance just below 107 cents.
Net export sales for the week ending November 2, 2011, totaled 998,000 RB of Upland and 1,900 RB of Pima. China was all but the only buyer, taking 996,100 RB. Turkey and Guatemala were also buyers. Chinese purchases were believed to be earmarked for the national strategic cotton reserve. Including the more than two million bales of domestic Chinese cotton, it is believed that the Chinese government has now purchased a total of 3.75 million bales to date for the reserve. Too, there will be more buying of U.S. cotton by the Chinese government. Weekly shipments of U.S. cotton totaled 107,200 RB of Upland and 3,300 RB of Pima. Again, China was the primary destination for both the Upland and Pima shipments.
Additionally, the USDA November supply demand report was released and gathered only little interest from the market. The U.S. crop was reduced 300,000 bales, down to 16.3 million as the U.S. yield was reduced to 794 pounds per acre. Exports were reduced 200,000 bales in line with a smaller crop, but U.S. ending carryover was lowered 100,000 bales down to 3.8 million, an abnormally low carryover that will keep pressure under the market. There were scant few other changes as both the Indian and Chinese crops were unchanged. World ending stocks were increased only 130,000 bales and were estimated at 54.96 million.
The smaller U.S. crop, coupled with improved economic signals in both the U.S. and China, and supported by lower U.S. stocks, should provide price support into calendar year 2012. Note as well, that the New York December 2012 contract has now risen to near equal the December 2011 contract price. The improving economic conditions should bode well for increased consumption throughout 2012 and 2013 and the December 2012 contract eases back above the dollar level.
