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May 23, 2013
Collapsing technical support, concerns about demand, and forecasts for rain in West Texas weighed heavily on the cotton market this week as July futures lost 463 points through Thursday’s session at the Intercontinental Exchange (ICE) in New York, and December lost 226 points. Settling at 81.78 cents per pound Thursday, down 164 points, it was the lowest close for the July contract in 15 weeks. Trading volume was an estimated 34,568 contracts, the largest in more than a month, versus Wednesday’s cleared volume of 20,112.
The freefall came despite a slightly better than expected export sales and shipment report, a rally in the grain markets and a weaker dollar, according to one analyst. However, the lower prices seemed to motivate inquiries from textile mills, according to reports from Liverpool and Beijing.
Wednesday was the best day this week for cotton futures at ICE as all contracts except July posted slight gains at the close of trading. All contracts were trading higher early in the session before pressure returned to the front month. Analysts offered little explanation for the day’s activity.
Tuesday was the market’s worst day as all contracts posted triple-digit losses. In fact, nearby contracts suffered their steepest declines since May 1 as speculators appeared to become more aggressive sellers when prices fell below key technical support levels. July cotton led the downward move by settling 192 points lower at 83.86 cents, and December was not far behind as the contract ended the session at 84.15 cents, down 145 points.
Traders and analysts noted the much improved planting progress reported by USDA for the week ended May 19. According to the department, the 15-state average was 39 percent compared to 23 percent the previous week and the five-year average of 52 percent. Texas farmers had planted 29 percent of anticipated acreage versus 20 percent the previous week and the average of 42 percent. The progress in Texas may be a reflection of the ongoing drought and the reluctance of farmers to plant dryland acres until the last moment.
Current forecasts mention the potential for thunderstorms in West Texas through the end of next week, but meteorologists were quick to point out they were not expected to be “drought busters.”
Mississippi continues to lag at only 23 percent complete, up from just 7 percent the previous week. Last year, farmers in the Magnolia State had planted 93 percent of the crop; however, recurring and occasionally heavy rainfall has interfered with planting. Planting in California and Arizona was virtually complete in the most recent reporting period.
USDA also reported export sales of U.S. upland cotton totaled 101,700 bales in the week ended May 16, up 37 percent from the previous week but down 54 percent from the four-week average. China, Turkey and Vietnam were the week’s featured buyers. Net sales for delivery in the 2013-14 marketing year totaled 36,400 bales, and South Korea and Mexico were the featured buyers.
Export shipments for the week totaled 232,900 bales, down 24 percent from the previous week and 28 percent from the four-week average. China, Turkey and Vietnam were the primary destinations.