It was obvious from todayΆs market action that the pre-WASDE sentiment, with respect to the February 10 release, is bullish. The front month gained 164 points on the week to settle at 87.47, while Dec 14 gained 158 points to settle at 77.94.

A Bloomberg survey (to which we contribute) revealed expectations of reductions in both U.S. and world ending stocks figures to 2.8M and 97.26M, respectively. Some estimates of U.S. ending stocks have been published at as low as 2.5M bales. Our estimates are 2.75M and 97.46M.

Net sales on this weekΆs U.S. export report were off significantly from the levels of the last two weeks, but shipments set a MY record for the second consecutive week. Both new net sales and shipment figures far exceeded the per week requirements needed to meet the USDAΆs current 10.5 bale export projection.

The data suggests that no rationing of demand was accomplished over the sales report period from January 17 to January 23, when the volume weighted average price was 87.78, base May 14, when over 500K RBs were sold. And, the VWAP, base May 14, over the assay period to be reported upon next week was near 86.20. Hence, another strong, if not stellar export report could be in the offing for next week.

Concerning the WASDE report, pertinent things to watch for outside of U.S. ending stocks, are world ending stocks, less China and any production reductions attributed to Australia or Brazil as such would likely translate to increased demand for already scarce old-crop U.S. bales.

On-call sales of cotton to be fixed against contracts remaining within the current MY were off a bit, but remain very healthy. Both the gross level remaining and the futures price level at which recent fixations have been accomplished relay strong underlying support of the current market.

Mar 14 will likely conclude its tenure as the effective lead month next week. While it can move higher, experience has shown that it is most profitable to sell rallies during fund rolling periods. Given where business has recently been conducted, May 14 could certainly reach the 90.00 level.

Next week will be a relatively heavy report week, with WASDE and Cotton Ginning reports on Monday, and significant economic reports scheduled to be released from official sources within the US, EU and China.

Additionally, the National Cotton Council (NCC) acreage survey results release is scheduled for 8 a.m, EST tomorrow (Saturday, February 8). There is currently expected to be a 2M-acre increase over last seasonΆs 9M planted acreage estimate, but we seriously doubt that the estimate put forth tomorrow will match the average published estimates up to the point of near 11M acres.

Concerning Dec 14, some things are occurring in the producersΆ favor.

Both corn and soybean futures prices for delivery months have increased somewhat recently.

Old-crop ending stocks are growing tighter.

Drought conditions in Australia have caused Cotton Australia, a group that normally produces rather accurate estimates, to reduce their production estimate for this season by nearly 400K statistical bales. Reduced production in Australia could increase demand for old crop US cotton.

Further, while it is not beneficial to producers in west Texas and California, droughty conditions in those regions should help coax Dec 14 futures higher. Market participants are also becoming increasingly aware that this seasonΆs US production is likely to be much closer to 13.0M than 13.2M bales.

The next foreseeable bearish news could come from USDA at its annual Agricultural Outlook Forum on February 20, in which it could proffer a 2014/15 US ending stocks estimate that reflects higher production and lower export sales.

For the coming week we will remain long Dec 14, while harboring no real bias at this time concerning the direction May 14, although with support near 85.00 having held staunchly for the front month, we expect that May 14 will trade a range from 85.50 – 89.00 on the inside or 85.00 – 90.50 on the outside.

The Rose Report weekly edition is made available here to people interested 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.