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NY Cotton Futures remain steady this week
14
Jun '14
Since falling over a precipice three weeks ago, with December trading to a low of 7700 on May 28, the market has managed to flag sideways over the last eleven sessions. Although December briefly dipped below this triangle formation on Wednesday, it quickly recovered and then followed up with a strong showing today. Recent price action therefore suggests that December has found an area of strong support, as it has settled the last eleven sessions in a tight range of just 119 points, between 77.19 and 78.38 cents. 
 
Just when it looked like December was getting ready for another leg down, the USDA helped the battered bulls out with a supply/demand report that was less bearish than the consensus estimate. The main feature was US crop production, which was raised by just 0.5 million bales to 15.0 million bales. The USDA is clearly taking a measured approach in regards to the potential this US crop holds after the recent rains in West Texas, as most trade estimates are at least a million bales higher at this point. Unless there is going to be a major setback, the USDA will eventually have to add to their US crop number over the coming months.
 
As expected the USDA raised Chinese imports for the current season from 12.75 million bales to 13.5 million bales. This means that Chinese imports will once again outpace the ROW production surplus of 11.81 million bales. Last season we had a similar situation when Chinese imports of 20.33 million bales were higher than the ROW surplus of 17.18 million bales. 
 
The 2014/15-season is expected to break this trend, as Chinese imports of an estimated 8.0 million bales will be no match for a ROW production surplus of 11.13 million bales. This in turn is expected to boost ROW ending stocks from 38.69 to 41.95 million bales, and this number could increase further if the US crop were to realize its potential. 
 
It is this shift from very tight ROW stocks to a more ample inventory scenario that has traders and specs on the defensive. However, as we have pointed out before, there is still along way to go before any such bearish scenario can play out, as the crops are not made yet and the market does have a tendency of underestimating Chinese imports. 
 
US export sales for the week ending June 5 were about as expected, with net new sales of 42’500 running bales for June/July shipment and 74’700 running bales for August onwards. What’s remarkable is that 22 different markets shared this small amount of new sales! This indicates to us that there is still a lot of buying interest for nearby shipment and that these relatively low export sales are more a function of limited availability than a lack of willing buyers. 

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