Jump in unemployment to cut into sales of textile products
As result of the cotton markets 800-point rally, US prices ran off and left other world growths. Unfortunately, this dried up what little business was being done and left cotton vulnerable to the plethora of horrible economic news and a crumbling commodity complex.
Commodity prices in general collapsed as the week came to an end taking the CRB Index of 19 commodities to new six year lows. The market rally had no fundamental legs to stand on and left demand behind. This caused US offers to go from the cheapest in the world to falling totally out of Cotlook's A Index in just four sessions.
March cotton ended at 4137, 223 lower for the day and 654 lower for the week. December 2009 lost 551 points for the week closing 602 below the base loan rate.
The market's sharp break the latter part of the week predictably brought grower sales to a virtual standstill; with the least number of bales sold on the seam since contract lows were hit almost four weeks ago.
Adding to the problem is the fact that even the Government intervention in China, our biggest customer, has had trouble stemming the tide of their falling domestic prices. Many Chinese mills are idling about a third of their capacity and their government is trying to step up its daily purchase of domestic cotton in an effort to stabilize the situation.
While we are dependent on the Chinese to buy our cotton, their mills there are dependant upon a healthy US economy to take the textile good off the shelves. After all, we are the biggest consumer and the consumer always has the ultimate say.
Domestically, retail sales of the major stores, other than Wal-Mart, for the period up through Black Friday after Thanksgiving were in the tank - and obviously, the jump in unemployment will cut into sales of textile products.
To give you a hint as to what USDA may very well say on this weeks Supply/Demand report, on a report released last week, they cut their estimate of U.S. agricultural exports for fiscal 2009 by $14.5 billion, or nearly 13%, due to falling prices and weak demand caused by the global recession.
"The outlook for U.S. exports has changed dramatically with the expectation of global recession in 2009," says USDA. "The combination of weaker global demand, falling prices and an appreciating dollar create a very unfavorable outlook for U.S. exports."
Cotton exports were forecast at $4 billion, down $1.9 billion from August. USDA says China would see its first year-to-year decline in cotton consumption since 1998-1999. "Deteriorating world economic conditions dampen consumer demand for textiles and pressure cotton prices," says the report.
Cotton had a corrective, 800 point, bear market rally and as expected there was tough overhead resistance 1,200 over the AWP around 48 cents. The fundamental fragileness of the rally was shown to be quite evident in last weeks puny export sales number. However, the resulting selloff was still much steeper than expected. Opening on its highs and closing on its lows the final two days of the week certainly portends lower targets.