By Dr. O.A. Cleveland
Professor Emeritus, Mississippi State University
Special for Bayer CropScience
CottonΆs performance this week was well suited for New York, given the events on Broadway. Concerns about the upcoming May contract delivery period, coupled with continued improving numbers surrounding consumption and more news that expectations for 2012 Chinese plantings shrink each week, supported prices all week. Yet, with all that activity December ended the week essentially unchanged. However, July, reflecting delivery concerns and the limited availability of old crop carryover, was some 200 points higher.
The market opened its weekly trading with a very bearish tone, flip flopped and was very bullish on Wednesday and Thursday before settling down in FridayΆs trading. The near term remains in the bullish camp, but longer term the December 2012 and 2013 contracts still have a bearish technical tone as December must climb back above 91 cents before the speculative funds will rally to the contract. The long term bears are focusing on the very large volume of world carryover and the two year old consumption pull back. Yet, the long terms bears watch as the High Plains of Texas continue to parch and the drought spreads further into Rolling Plains. While the Rolling Plains generally has better moisture than a year ago, the region is generally classified as in as a “moderate” to “severe” drought. Most of the High Plains remains in the grip of an “exceptional” drought, NOAAΆs worst drought category.
Additionally, the long term bulls point to the continued flight by Chinese growers from cotton to grain and oil crops. Chinese estimates of a sixteen percent drop in 2012 plantings have hardened and some “official” data sources now place plantings down nineteen percent from a year ago and peg the crop at a maximum of 27 to 27.5 million bales, compared to 34 million bales in 2011. Too, more and more (but still the minority view) point to improved demand…And just like the remainder of the economy, cotton consumption is highly dependent on the health of the economy.
Export sales have slowed considerably, given the higher prices of the May and now the July contract. While sales have been less than inspiring recall that available U.S. stocks are low and are being somewhat rationed by the market. Mills had though they could buy more below the 88 cent level and have backed away for now. However, shipments continue on track to meet the new USDA export estimate of 11.5 million bales, up 500,000 bales from the March estimate.
Mills have made scant purchases to cover their requirements for new crop, to include the fourth quarter of 2012 and all of 2013. Good buying is under the market, but mills will play wait and see with respect to the U.S. moisture situation as well as plantings in the Mid-South and Southeast. The coming month should continue to be very range bound and work the 87 to 90 cent level, basis December.
