By Dr. O. A. Cleveland
Professor Emeritus, Mississippi State University
For Bayer CropScience
Cotton struggled all last week attempting to keep its head above water, but demand continues to plague market activity. After struggling to move back above the dollar level, cotton prices ended the week at 101.77, a moral victory. Yet, the bearish trend remains in place and demand continues to escape the market, and until a significant volume of demand is uncovered, the market will attempt to test the 94-96 cent level again, with thoughts of moving down to 92 cents (the 4-week and 13-week low) if that level is breached.
Exports sales remain very week, but then the U.S. has little cotton available for export. Old crop sales have been negative for 17 of the past 18 weeks. Of course, that is the demand story because as all of Asia and the Subcontinent have slowed their textile operations. These areas account for approximately 80 percent of all cotton spun in the world.
Certificated stocks are only 13,566 bales. While this is dangerously low, the beginning of the October delivery period is still more than six weeks away, and the likelihood of enough new crop to come to the Board is very high. The 2010/11 marketing year ends Sunday, July 3, and then net export sales will be on the increase. Yet, demand, slightly improved over the past two weeks, is still a drag on the market. A considerable improvement will be required to get the market back to the 105.00 to 106.00, the point where the bulls would begin to feel a bit comfortable in adding to their long positions. Yet, for now the marketΆs bearish tendencies are being used to paint the down trending price line.
Texas cannot get a break. The Plains continue to get 100+ degree weather, as well as winds. The winds have died down a bit, but are consistent. The U.S. hurricane season has officially begun, and the cotton growing regions of South Texas and the Coastal Bend were hit this past weekend. With only 50 to 60 percent of that crop already harvested, the remaining crop will face both yield and quality loss. Nevertheless, the Rolling Plains and Central Texas crop could receive marginally beneficial rain. Yet, it is doubtful that the moisture will prove anything other than of marginal benefit to cotton yields in those areas. It is simply too late for the bulk of the crop. A minimum of $74 million had already been paid out to Texas growers in insurance indemnity payments as of July 25.
Crop conditions in China, India, Pakistan and Central Asia are all showing good improvement and crop estimates are being increased. Thus, it may be that the U.S. and Nigeria will be the only two countries to suffer year on year crop reductions in 2011. Yet, also recall that it was this time last year when global crop progress began to digress and sent prices higher
While the weekly USDA crop progress report for last week represented the poorest crop conditions in history for this time of the year, the crop is marking marginal progress. However, it continues to be late. This will become of heightened concern if the weather forecasters are even reasonably accurate. A very active hurricane season is forecast and does not bode well for the Mid-South and Southeast crops as late as they are. Additionally, should that prediction prove to be correct then forecasters say that the drought in Texas would be expected to continue with only marginal relief. Of course the former would reduce the 2011 crop while the latter would spell trouble for the 2012 Southwest crop.
