Interviews
Cotton futures regain their bullish tone
12 Feb '08
3 min read
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 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.
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 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.
O.A. Cleveland
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