Marketing Weekly
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Febuary 08, 2008
By: O.A. Cleveland, Ph.D. | Biography
Cotton futures regained their bullish tone this week despite USDA’s February supply demand report that showed larger ending stocks in the U.S., China and the Indian Subcontinent. Yet, the bullish tone remains for the December 2008 and the 2009 contract months. The nearby March, with option expiry today, is set to move to first notice day with the May contract becoming the lead month. The price tone for the near term appears bearish from a pure cotton fundamental view, and sharply contrasts with a strongly bullish tone for grains and oilseeds. The bullish tone in those markets, coupled with a continued decline in cotton acreage will support the New York May and July contracts within their current range. In fact, despite this near term bearish scenario, the New York contract was up today.
Consistent with expectations, USDA reduced exports for the U.S. by 300,000 bales, down to 15.7 million. There were no other supply demand changes, thus ending stocks for the 2007-08 marketing year are now estimated at 8.2 million bales, up 300,000 bales from last month.
The bigger news was associated with world production and consumption and their respective effects on world stocks. World production was raised one million bales and was now estimated at 119.21 million bales. World consumption was reduced 1.7 million bales and estimated at 126.32 million. Thus, the current estimate for world ending stocks is 57.33 million bales, up 2.58 million from the January estimate.
The Chinese crop was increased one million bales, in line with four month old rumblings out of the country and is now estimated at 35.5 million bales. Chinese imports were decreased 500,000 bales, down to 13.5 million. Additionally, Chinese consumption was reduced one million bales, falling to 54.0 million, and the first year-to-year decline of the decade.
The Indian Subcontinent had Pakistan’s production increased by 400,000 bales, climbing to 8.6 million while imports were reduced 300,000 bales to 3.2 million. Indian production was reduced 500,000 bales down to 24.5 million while Indian consumption was reduced 500,000 bales.
These numbers beg the question of how cotton prices can remain afloat with fundamentals turning to the bearish side. The answer lies in the outside commodity markets and the price ratios of cotton with competing crops. With oilseed, grain and vegetable oil stocks declining, those markets are well beyond to price level necessary to rob cotton of measurable acreage for the second consecutive year.
The soybean market has risen to the level that planting seed is in a deficit situation. Many acres planned for soybeans will have to find another crop. Grain Sorghum (Milo) can now be booked on the Texas high Plains for $9.25 to $9.50 per hundredweight (cwt). This is near two dollars higher than last season’s high and sends a strong message to growers and lenders alike; Put all the dryland plantings to grain sorghum. Past weekly comments addressed the likelihood that Texas cannot even approximate its 2007 yields. Thus, the stage is set for an 8.0 to 10.0 million bale drawdown in world stocks during the 2008-09 marketing year. U.S. stocks will likely fall below 3.5 million bales.
The increasing demand for cotton rich fabrics in the expanding economies of India and China, coupled with the U.S. consumer’s expanding demand for cotton goods in the face of declining world stocks, will pull the December contract to 80 cents.
View Previous Reports: February 8,2008 February 1,2008 January 25,2008 January 18,2008 January 11,2008 January 4,2008 December 21,2007 December 14,2007 November 30,2007 November 16,2007 November 13,2007 November 2,2007 October 25,2007 October 19,2007 October 12,2007 October 5,2007 September 28,2007 September 21,2007 September 14,2007 September 7,2007 August 29,2007 August 24,2007 August 17,2007 August 10,2007 July 27,2007 July 20,2007 July 13,2007 July 9,2007 June 29,2007 June 22,2007 June 15,2007 June 1,2007 May 25,2007 May 18,2007 May 11,2007 May 4,2007 April 27,2007 April 20,2007 April 13,2007 April 6,2007 March 30,2007 March 23,2007 March 16,2007 March 9,2007 March 2,2007 February 23,2007 February 16,2007 February 9,2007 February 2,2007 January 26,2007 January 19,2007 January 13,2007 January 5,2007 December 26,2006 December 15,2006 December 8,2006 December 1,2006 November 17,2006 November 10,2006 November 3,2006 October 27,2006 October 20,2006 October 13,2006 October 6,2006 September 29,2006 September 15,2006 September 8,2006 September 1,2006 August 25,2006 August 18,2006 August 11,2006
Febuary 08, 2008
By: O.A. Cleveland, Ph.D. | Biography
Cotton futures regained their bullish tone this week despite USDA’s February supply demand report that showed larger ending stocks in the U.S., China and the Indian Subcontinent. Yet, the bullish tone remains for the December 2008 and the 2009 contract months. The nearby March, with option expiry today, is set to move to first notice day with the May contract becoming the lead month. The price tone for the near term appears bearish from a pure cotton fundamental view, and sharply contrasts with a strongly bullish tone for grains and oilseeds. The bullish tone in those markets, coupled with a continued decline in cotton acreage will support the New York May and July contracts within their current range. In fact, despite this near term bearish scenario, the New York contract was up today.
Consistent with expectations, USDA reduced exports for the U.S. by 300,000 bales, down to 15.7 million. There were no other supply demand changes, thus ending stocks for the 2007-08 marketing year are now estimated at 8.2 million bales, up 300,000 bales from last month.
The bigger news was associated with world production and consumption and their respective effects on world stocks. World production was raised one million bales and was now estimated at 119.21 million bales. World consumption was reduced 1.7 million bales and estimated at 126.32 million. Thus, the current estimate for world ending stocks is 57.33 million bales, up 2.58 million from the January estimate.
The Chinese crop was increased one million bales, in line with four month old rumblings out of the country and is now estimated at 35.5 million bales. Chinese imports were decreased 500,000 bales, down to 13.5 million. Additionally, Chinese consumption was reduced one million bales, falling to 54.0 million, and the first year-to-year decline of the decade.
The Indian Subcontinent had Pakistan’s production increased by 400,000 bales, climbing to 8.6 million while imports were reduced 300,000 bales to 3.2 million. Indian production was reduced 500,000 bales down to 24.5 million while Indian consumption was reduced 500,000 bales.
These numbers beg the question of how cotton prices can remain afloat with fundamentals turning to the bearish side. The answer lies in the outside commodity markets and the price ratios of cotton with competing crops. With oilseed, grain and vegetable oil stocks declining, those markets are well beyond to price level necessary to rob cotton of measurable acreage for the second consecutive year.
The soybean market has risen to the level that planting seed is in a deficit situation. Many acres planned for soybeans will have to find another crop. Grain Sorghum (Milo) can now be booked on the Texas high Plains for $9.25 to $9.50 per hundredweight (cwt). This is near two dollars higher than last season’s high and sends a strong message to growers and lenders alike; Put all the dryland plantings to grain sorghum. Past weekly comments addressed the likelihood that Texas cannot even approximate its 2007 yields. Thus, the stage is set for an 8.0 to 10.0 million bale drawdown in world stocks during the 2008-09 marketing year. U.S. stocks will likely fall below 3.5 million bales.
The increasing demand for cotton rich fabrics in the expanding economies of India and China, coupled with the U.S. consumer’s expanding demand for cotton goods in the face of declining world stocks, will pull the December contract to 80 cents.