After two days of Dec 13 trading action that was slow enough to induce dozing, Dec finally showed some vigor on Friday, posting a 91-point gain and trading a 168-point range that was nearly all on the upside of ThursdayΆs settlement.

Dec 13 began the week at 83.57 and ended it at 83.21, a loss of 28 points, while finding and threatening new support just north of 82.00. After a lifeless overnight session, much heavier activity began within minutes after USDA-FAS released this weekΆs belated export report.

We were surprised traders did not hit the “buy” button quicker, but two straight weeks of reports that required some close examination to pull apart the details probably had traders wary of the details.

This report contained most of the things that we thought we would need to see in order to begin to have warm feelings for the remainder of Dec 13Άs life, namely increased net sales nearly double those of last week (173.3K RBS; 177.6K 480s, ELS included) with cancellations trimmed to approximately 23K bales.

However, the most important feature to us was the return of Asian business which had all but disappeared, save for cancellations, on the last two reports. China was responsible for the lionΆs share of those new sales, but most major spinning entities were represented.

This is especially encouraging in light of rumors that the trade expected this weekΆs report to resemble the last two releases, as Asian entities were seemingly more interested in Indian and Australian growths. The lone disappointment, perhaps, was the shipment number, 114.3K RBs (117.2 480s).

We began the week with a slight upward bias, and we were once again almost correct (almost) but that quickly waned when we saw prices tumble nearly 200 points from a weekly high of 84.10, discounting supportive news from outside markets and weekly crop progress report as funds continued to liquidate speculative long positions.

After last TuesdayΆs crop condition, many traders had expected an overall improvement due to improved weather in the southeastern states. We thought the Texas heat and drought would trump any improvement in the aforementioned region.

A troubling item in the report to us was that all mid-southern states, save for Louisiana and Alabama, saw at least a 1% reduction in overall crop condition. In all, the “very poor” and “poor” categories gained 2%, which translated into a 1 point reduction on the Dow Jones Cotton Condition Index.

Other items that helped to hold Dec 13 under 83.00 for much of the short week were a stronger US dollar, which weakened today, seemingly helping cotton as well as outside agricultural markets, and the persistent weakness of the Indian Rupee and the Brazilian Real.

As we look toward to the coming week, the large ticket item to watch is the USDA WASDE release on Thursday, Sept 12 at 12:00 P.M., CST. We have not seen any published industry estimates to date, but on the table are a potential large cut to production in China, a most likely upgrade to India and perhaps Pakistan, production, marginally higher domestic use in both the 2012/13 and 2013/14 MYs and, of course, a very possible reduction in US production.

In all, we have estimated world ending stocks to be reduced 1.25M – 1.75M bales with US production at 12.645M bales (upland and ELS) with reduced exports, which we may amend due to todayΆs report, for a US ending stock figure of 2.74M bales versus the 2.8M official USDA estimate.

The caveat here is that only USDA-NASS will be privy to updated USDA-FSA certified acreage data, to be officially released on Sept 17, but current USDA-RMA (crop insurance) data closely agrees with the latest USDA-NASS and USDA-FSA estimates, so we do not anticipate any large changes for cotton acreage.

We are concerned, however, with reports out of Texas relaying that a disproportionate amount of this yearΆs Texas crop is of the non-irrigated type, which may increase abandonment figures and almost certainly will reduce yield estimates.

Other items to consider this week are the weekly crop progress report on Monday, which we think will show improvement for the southeastern states, but further reductions in reported condition in Texas and Olkahoma.

Given todayΆs action, this might be construed as more supportive than the last report (should our prognostication be correct). The strength of the US dollar and the persistent weakness of currencies of large cotton exporters, continually falling open interest and the percentage of tenderable stocks from USDA-AMS classing data will all be items that cotton traders will be watching closely, outside of the WASDE release, this week.

And, of course, Syria.

We will also be paying close attention to the coming weekΆs export sales report, with an eye for Asian purchases and shipments. Continued US sales to Asia would go a long way to discount bearish sentiment in some circles. Ever the optimists, we think Dec 13 will be flat to slightly improved next Friday at settlement time, depending, of course, on USDA prognostications.

Louis W. Rose IV, PhD, MBA, grew up on a cotton farm in northeast Arkansas and has been involved in cotton his entire life – starting in his familyΆs fields, then as an Extension scout while attending the University of Arkansas and later as a crop consultant, operating his own firm before transitioning into a career as an agricultural analyst in 2000. He is a former Global Cotton Analyst with Cargill Cotton where he developed predictive statistical models for the firm. Rose currently provides analytical services. Contact: info@rosereport.com.