By Louis W. Rose IV, PhD, MBA, Rose Report daily

The front month turned positive today after four consecutive days of losses to finish the week 134 points off last FridayΆs settlement. The weekly settlement was a bit lower than what we had expected based on the results of the export report, but not by a lot. The catalyst moving prices lower D/D for 80% of this week seems to have been reduced CNCRC reserve auction prices in China and associated increased off-take. The CNCRC auction was also unfriendly to Dec 14 futures.

TodayΆs turnaround came post the dissemination of ThursdayΆs on-call report which showed that prices had retreated, over the four day slide, to levels at which a significant amount of fixations could be accomplished.

To date, no significant rationing of demand for US cotton has been accomplished, per this weekΆs US cotton export report. New net sales and shipments continue to exceed weekly requirement levels to meet the USDAΆs 10.7M bale export projection and an inferred carryout of less than 2.5M bales.

The USDAΆs Prospective Plantings report revealed that US producers intend to plant (or intended to plant during the survey period) 11.1M acres of cotton, which was 20K acres above the estimate that we put forth here last week. The marketΆs reaction, however, was not in-line with our expectations – not that we expected fanfare and fireworks, but we had thought that such an estimate would have prompted a more enthusiastic reaction.

Perhaps the upcoming WASDE report, scheduled for release on Wednesday, April 9 will provide a bit more excitement. Our analysis and estimates for the aggregate world numbers do not reveal anything earth-shattering with respect to world production, consumption and ending stocks at 116.31M, 109.1M and 96.37M bales, respectively. But that is not to say that a backward revision of some sort (which we do not normally attempt to predict) could not change that. For the US, however, we expect ending stocks to be reduced to 2.47M bales via the USDA holding their current export projection static at 10.7 M bales and reducing 2013 production to the final ginning report number of 12.86M bales. The publishing of such a low ending stocks estimate, given that the information alluding to such estimates has already been published, separately, by other USDA agencies could set up a “buy the rumor, sell the fact” scenario. However, an official US carryout estimate of less than 2.5M bales will likely be bullish.

Not to skip too far ahead, but the May WASDE report will be the premier upcoming event, as it will provide the first complete S&D balance sheet for the 2014/15 MY. The USDAΆs initial US S&D, disseminated at the Ag Outlook Forum in Feb, employed a national average yield of 805 lbs/acre to an expected planted acreage of 11.5M acres and abandonment of 16%, resulting in expected production of approximately 16.3M bales.

The USDA is bound to apply the Mar 31st prospective planting results to its May balance sheet and, with the same parameters applied in the same manner, US production can be inferred at near 15.64M bales. With no adjustment to the 2014/15 export projection, ending stocks could be inferred as low as 3.5M bales. And, when applying the Mar 31st results to individual states and districts (with reasonable, historical expected abandonment rates applied) US production could fall significantly further.

Still, significant rains over west TX in the near future and throughout the growing season could add upside potential to US production.

Looking forward to next week, we expect the WASDE report to be supportive and we further expect an export report similar to the most recent one, given the price structure over the assay period.

Dec 14 gave up a single point on the week while Setp 14 corn and Nov 14 soybeans settled above $5.00/bu and $12.00/bu, respectively. If this trend endures much longer another cotton acreage reduction, primarily within the mid-south and southeastern states, is likely to be revealed on the USDAΆs June 30th acreage report.

Our initial technical analysis calls for the W/W settlement to be near unchanged next Friday, amid volatile trading conditions. Fundamentally, the market will continue to monitor CNCRC auction prices and off-take for bearish sentiment while the need to ration demand of US stocks, a large remaining on-call sales position for the current MY and likely bullish reports will likely point the market northward, especially if US currency does not grow markedly stronger.

In the end, we will call for unchanged to higher next Friday for May 14, as it prepares to hand the baton off to the July contract as the lead month, while trading a range of 90.75 – 94.80 on the inside or 89.60 – 96.00 on the outside.

The Rose Report weekly edition is published and made available free of charge as a courtesy to producers, ginners, merchants, agents and all others who have an interest in the cotton market. To obtain a free trial of the more comprehensive and up-to-date Rose Report daily edition or to learn more about our other cotton analyses and analytic services please visit: http://www.rosecottonreport.com/.

Louis W Rose IV, PhD has worked with cotton as a producer, consultant, analyst and trader. Rose holds degrees in Education, Agriculture, Plant Science and Business (MBA) from AR St Univ, OK St Univ and the Univ of Memphis, respectively. He has held positions with Aon Reinsurance and Cargill Cotton. Rose currently provides analytic services for various clients and media outlets and is the co-founder of Risk Analytics, LLC, producers of The Rose Report, which he authors. For more info on The Rose Report or analytic services, please visit: www.rosecottonreport.com.