Slowdown to affect worldwide consumption of cotton
The joke about economists is that we have predicted 12 of the past 4 economic recessions. Well, I think I have already called the market bottom three times in the past ninety days and the market still wants to move lower. I will refrain from calling the current low a bottom, at least for now.
The only credits I can take have been the calls that outside markets would be more important to the direction of cotton prices and that once cotton traded on its own fundamentals, then the high forties to low fifties were possible. Yet, I was foolish enough to say that it would not go that low. I am not that bearish simply because of the negative outlook for 2009 plantings. Business Week has an informative background story regarding a potential decline in 2009 U.S. plantings.
We have long talked that other markets would control price direction more so than cotton fundamentals. Certainly the Wall Street meltdown, principally led by the debt crisis, has controlled all markets the past two weeks, if not from behind the scenes for the past three months.
Too, we have discovered that the debt crisis has spread through Europe just as if were the 14th Century plague that so ravaged the continent. The economic difficulties that have spread across Asia the past six months were highlighted by a decline in consumer activity and were conspicuously noticeable in cotton consumption. While today's supply of cotton is overwhelming the market, the major culprit is the downturn in global cotton consumption. The 2008 world crop will be smaller than currently predicted, but consumption will also fall further.
Export sales continue to disappoint cotton traders, but have proved to be a boom to international textile mills. Remembering a year ago, when we “thought” world economic conditions were in excellent health, cotton consumption was expected to continue to grow and that production would decline; it was not even possible that cotton prices could fall below 65 cents. Of course, the market typically does the “impossible.” Always remember, “The market is a tough taskmaster; it gives the test first and the lesson afterwards.”
In March, our predictions seemed to be prophetic as cotton soared to one dollar a pound. Now, like the legendary Icarus of Greek mythology that sailed so high that the sun melted its wings and sent it crashing back to earth; so has gone the world economy; thus, the outlook for cotton consumption is very much in doubt.
U.S export sales for the week ending 9/25/2008 fell to a net of 111,900 RB. Upland sales were 110,400 RB with principal sales being made to Turkey (19,100 RB); Indonesia and Thailand. Sales of Pima cotton totaled 1,500 RB with the primary buyers being Hong Kong (800 RB); Japan and Indonesia.
Shipments were also below the level need to meet USDA's reduced forecast. Exports totaled 235,200 RB with Upland shipments accounting for 232,500 RB and Pima shipments at 2,700 RB. Primary destinations of Upland were China, (88,600 RB); Indonesia and Turkey. Pima shipments included Japan (800 RB); South Korea and Indonesia.