Demand For Quality Cotton Keeps Market Positive

By Dr. O. A. Cleveland

The slightly bloated week ending with the October World Supply Demand report failed to slow the cotton market. The nearby New York December futures was some 20 points higher going into the close, with a near certainty of holding above 64 cents and holding a gain of near 300 points on the week.

The market spent most of the week in positive territory, as the market appeared to buy into the traders’ idea of a lower U.S. crop. USDA rewarded those traders with a 280,000 bale reduction, dropping the 2014 estimated U.S. production to 16.26 million bales.

This was significant in that the U.S crop is already highly prized in the export market. The market’s ability to close higher continues to voice the immediate need for quality cotton, coupled with the delayed/slow harvest around much of the globe. However, look for the 61 to 72 cent trading range to continue. More specifically, the 61 to 65 cent trading range will remain dominant, as the nearby 65 cent price resistant is becoming entrenched.

Granted, more and more are joining the band calling for trades below 60 cents and now even down to 55 cents. The 61/62 cent support level is backed by another at 57 cents and again more at 55 cents.

USDA left domestic consumption and exports unchanged and reduced carryover 300,000 bales, essentially equivalent to the reduction in production. These were well expected. Thus, exports were estimated at 10.0 million bales, domestic consumption at 3.8 million and carryover now at 4.9 million bales.

Nevertheless, while U.S. ending stocks were lower, this month’s estimate still represents a near 100 percent increase over last season’s 2.5 million bales, and thus, the reason for the general bearishness the market has suffered the prior three months. Nevertheless, the smaller than expected crop outside China still supports December in the near term and likely into December.

USDA estimates of the world situation were a bit surprising, in that the Department increased production, consumption and ending stocks as well. Production was increased 1.4 million bales, up to 119.4 million. Consumption was increased to 113.7 million bales – up 1.6 million bales – and ending stocks were increased 800,000 bales, up to 107.1 million. The reason for increased ending stocks was solely based on adjustments to its 2013-14 estimates, not current season estimates. Otherwise, ending stocks would have been lowered in this month’s report.

Principal changes in the world estimates were based on increased production in China (up 1.0 million bales), Pakistan (up 300,000) and India (up 1.0 million). Reductions included the U.S, Brazil (down 300,000 bales) and Australia (down 200,000 bales). Again, for the third consecutive month, USDA lowered its production estimates in the U.S., Brazil and Australia – the primary suppliers of quality cotton for the export market of which China is, and will remain, the primary customer for such cotton.