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Cotton Market Weekly

The U.S. Department of Agriculture surprised most cotton market analysts and traders Tuesday with the release of its monthly supply and demand estimates for the 2014-15 marketing year. The department raised its estimate for U.S. production to 17.5 million bales, up 1.0 million from the previous month’s report.

The average of most private estimates was 17.0 million bales. USDA’s estimate for domestic consumption was unchanged at 3.8 million bales, but exports were raised 500,000 bales to 10.7 million. U.S. ending stocks are now projected at 5.6 million bales, a 38.6 percent stocks-to-use ratio.

The Texas crop was pegged at 7.1 million bales, up from approximately 4.2 million last year. The High and Rolling Plains are expected to produce 5.44 million bales this year. USDA estimated Oklahoma production at 375,000 bales versus 154,000 in 2013, and the Kansas crop was pegged at 60,000 bales, up 19,000 from last year.

The department also raised its estimate for world production by 1.22 million bales to 117.64 million and raised estimated consumption by a similar amount to 112.6 million bales. Consequently, world ending stocks fell slightly to 105.08 million bales compared to 105.68 million estimated last month.

The estimates quickly put cotton prices at the Intercontinental Exchange (ICE) on the defensive Tuesday. December cotton fell to 63.29 cents per pound, down 111 points, as selling intensified near the end of the session. The contract settled at 63.37 cents, down 103 points on the day, after posting a high of 64.75. At least one analyst expressed skepticism about USDA’s higher estimate for world cotton consumption while wondering if the U.S. crop could be larger than 17.5 million bales based on the latest Crop Progress Report.

The report, for the week ended Aug. 10 showed 52 percent of the U.S. crop was rated good to excellent, down one point from the previous week. The Texas crop was rated 37 percent good to excellent, down one point, Oklahoma was unchanged at 65 percent, and the Kansas crop improved two points to 58 percent good to excellent.

Cotton prices rebounded Wednesday at ICE, more than recouping the previous day’s losses. One market observer expressed concern about “the relatively tight physical situation as the market tries to bridge old and new crop supplies” to help explain the recovery in cotton futures. “The timing and availability of new crop supplies in the U.S. and abroad remains a point of contention and source of debate among traders,” he added. December cotton surged to gains of 190 points before settling at 64.72 cents per pound, up 135 points.

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