Mixed reactions in New York cotton futures last week

24 Nov '14

5 min read

AWP redemption values are always fixed for an entire week, from Friday to Thursday, and for the coming week the AWP is set at 46.12 cents, which is 245 points lower than in the previous week. That’s enough incentive for many growers and coops to hold on to their cotton a little longer.

Not all growers will benefit from this loan game, as some of them may already have maxed out on payment limitations, especially if they have other crops like corn or soybeans that eat up their allowance.

Nevertheless, there is still a substantial amount of smaller and medium sized growers, especially in Texas, who greatly benefit from these subsidies.

The daily EWR report shows that 6.4 million bales of US new crop are currently listed as ‘open’ and that only a little over 0.8 million bales are ‘under shipping order’ to domestic and foreign destinations.

In other words, the cotton is there, but it is not being applied and shipped as fast as it should.

The US export sales report is another piece of evidence in that regard, as last week only 66,600 running bales got shipped. So far only 1.4 million statistical bales have been exported this season, which is over 600,000 bales, less than a year ago.

US export sales on the other hand were quite decent in the last two reports, amounting to a combined 360,400 running bales of Upland and Pima cotton for both marketing years.

Sales are not the problem, as total export commitments for the current season have already reached 6.6 million statistical bales or 66 per cent of the expected total.

“This means that for the remainder of the season average weekly sales need to average only a little over 90,000 bales, which certainly seems feasible,” the report explains.

As long as the AWP keeps falling, it will be difficult to get enough US cotton into the system to alleviate the current bottleneck. Merchants are desperate to get their hands on cotton, especially for supplies they have already bought.

The current AWP calculation of 45.86 points to yet another week of increasing subsidies, which would keep most cotton locked away. Sooner or later something will have to give, meaning, need for a spike in prices to motivate growers to finally let go some of their cotton.

However, “flush-out rallies” would likely be sold into by the trade, since the newly released grower cotton would need to be hedged. The report therefore, sees the market range bound in the foreseeable future, probably somewhere between 57 and 62 cents. (AR)

Fibre2fashion News Desk - India

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