KANSAS CITY (Dow Jones)--Cotton futures climbed Friday on news the U.S.
Agriculture Department raised its estimate for domestic consumption and
exports, although sagging weekly export sales extracted initial bullish
momentum from the market.
Friday, cotton for nearby October delivery rose 0.50 cent, or 0.55%, to 90.87
cents a pound on ICE Futures U.S., off the session high of 91.96 cents. While
cotton closed off session highs, prices remain near the 15-year peak of 93.85
cents.
Most active December cotton climbed 0.83 cent, or 0.92%, to 91.29 cents, down
from the intraday peak of 92.25 cents.
The market initially climbed on the supply/demand news, which traders
described as friendly to bullish for prices, but gains were later pared, owing
largely to a slowdown in weekly export sales.
In its September crop production and supply/demand reports, the USDA pegged
U.S. cotton exports for 2010-11 at 15.5 million bales, up 500,000 bales from
last month. Tight world stocks are expected to keep textile mills around the
world aggressively securing supplies, thus supporting the increase in exports.
The U.S. is the third-largest producer and the biggest exporter of cotton in
the world.
"This certainly confirmed the bullish fundamentals that the market has
perceived for a long while," said Mike Stevens, independent cotton analyst and
broker based in Mandeville, La.
Consumption in the U.S. continues to strengthen, and while global consumption
was revised slightly lower it remains at overall strong levels, he said.
U.S. cotton consumption was raised by 200,000 bales to 3.6 million,
reflecting strong demand and prospects for additional spinning capacity, the
USDA said.
The USDA raised its estimate for 2010-11 production to 18.84 million bales,
from 18.53 in August. On average, analysts had expected a slight decrease to
the crop size in a survey taken earlier this week. The government cited
increased output across the entire cotton belt, taking the average yield to 839
pounds per acre, from 837 last month.
The result of the changes, including a 100,000-bale reduction in beginning
stocks, trimmed U.S. cotton stocks to 2.7 million bales from 3.2 million in
August. This would be the smallest amount of cotton stocks since the 1995-96
crop year, the USDA said.
Turning to the world numbers, the USDA nudged up its 2010-11 global
production estimate by 100,000 bales to 116.95 million. Crop reductions in
China, Pakistan and Tanzania were more than offset by increases in the U.S. and
Australia.
The USDA's estimate of global cotton consumption was trimmed by 280,000 bales
this month on the heels of a 500,000-bale reduction in Pakistan due to the
devastating floods there.
The USDA also trimmed Pakistan's cotton output by 200,000 bales to 9.3
million.
"The USDA has taken a very cautious approach to estimating Pakistan's and
China's crops and use," said John Flanagan, president of Flanagan Trading Corp.
in Fuquay-Varina, N.C.
"They are probably waiting for more definitive information and will probably
refine their estimates between now and December," he said.
The USDA attache in Islamabad recently estimated Pakistan's crop at 8.75
million, 480-pound bales, a 17% reduction due to the floods.
China's cotton output was downwardly revised by 500,000 bales to 32.5
million, as the effects of heavy rains begin to take a toll on the crop. The
USDA also raised its estimate of China's imports by 250,000 bales from last
month to total 12.75 million bales.
China is the world's largest importer of cotton and sources most of its
supplies from the U.S.
Global ending stocks were trimmed by just 170,000 bales to 45.44 million and
were mostly neutral for prices.
Cotton futures lost their initial bullish momentum as traders saw that U.S.
weekly exports were down more than expected as high prices stem nearby demand.
"Exports were lousy this morning," said Sharon Johnson, senior cotton analyst
at First Capitol Group in Atlanta.
Total export sales were just 112,200 bales in the week through Aug. 2, down
from 252,200 bales the week prior, the USDA said.
