Cotton market Weekly

Favorable growing conditions in the United States pressured the cotton market this week as traders and analysts anxiously awaited USDA’s monthly supply and demand estimates. Although most observers were expecting an increase in the department’s U.S. production estimate for the 2014- 15 marketing year, the figure may have surprised some when it was released Friday morning.

The department raised its estimate of U.S. cotton production to 16.5 million bales, up 1.5 million from last month’s balance sheet. The export estimate was raised 500,000 bales to 10.2 million, and domestic consumption was pegged at 3.8 million bales, up 100,000 from the June estimate. U.S. ending stocks are now projected at 5.2 million bales, up 900,000 from a month ago.

The world production estimate was raised 500,000 bales to 116.42 million, and consumption was lowered to 111.34 million bales from 112.29 million last month. Consequently, world ending stocks are now estimated at 105.68 million bales.

The December cotton futures contract at the Intercontinental Exchange (ICE) began the week under pressure, falling to triple-digit losses in the first 20 minutes of trading Monday. The contract hit bottom at 70.00 cents per pound, down 206 points, before it reversed course and settled at 70.21 cents, down 185 points. December was not alone as all contracts settled with losses of more than 100 points.

The crop conditions report showed 55 percent of the U.S. cotton crop was rated good to excellent for the week ended July 6 compared to 53 percent the previous week. The Texas crop was rated 41 percent good to excellent and 37 percent fair. The Oklahoma and Kansas crops were rated 58 percent and 54 percent good to excellent, respectively.

The pressure eased a bit on Tuesday, and it appeared December cotton was poised to end the session on positive ground; however, selling pressure returned in the final 30 minutes as the contract settled at 70.10 cents per pound, down 11 points. At least one analyst noted the market’s oversold condition but added it could continue that way for “a lot longer time.”

Wednesday’s ICE session was a near carbon copy of the previous one as late selling pushed December cotton below the psychological 70-cent level to settle at 69.67 cents per pound, down 43 points. In addition to favorable conditions in Texas, a broad weakness in other commodities, mostly grain and oilseed futures, appeared to carry over into cotton.

As expected by some market observers, the weekly export sales report was improved. USDA reported net upland sales of U.S. cotton totaled 67,600 bales in the week ended July 3, up 94 percent from the previous week and 16 percent from the four-week average. Turkey and Vietnam were the featured buyers. Net sales for delivery in the 2014-15 marketing year totaled 203,200 bales, and Turkey, El Salvador, Mexico, and China were the top buyers. Export shipments for the week totaled 136,400 bales, down 20 percent from the previous week. The primary destinations were China, Turkey and Mexico.