Interviews
Near term demand for physical cotton rises above supply
17 Feb '07
3 min read
Last week's Reinhart letter put in simple words what all have been saying...With all the US cotton moving to the loan the market becomes near term bullish and long term bearish, which is exactly the opposite of the Chinese demand which is near term bearish and long term bullish.
The weekly export sales report finally added some decent news to the market as net export sales of upland cotton for the week ending 2-08-07 were 298,400 bales. Finally, China was the primary buyer with 82,500 bales. Yet, contrasted to last season when sales to China accounted for about fifty percent of weekly sales, current sales are only about thirty percent of weekly US sales.
Interest in US cotton has increased around the world as sales of Indian cotton for export have slowed. Next week should see another strong export sales report as sales have been made to a large number of locations, including China. The sell off of the May contract has uncovered more and more demand. However, with only two more trading sessions left until March first notice day, the May contract is set to become the lead contract.
With May futures trading near 52-53 cents, it is likely that more and more grain and soybean acreage will move out of cotton, especially in the dryland Oklahoma Texas area. That will lead to a rebound in the market as Chinese demand begins to pick up in the fall of the year and in the longer term.
However, for now the lack of Chinese demand for US cotton will keep the May contract on its heels. Again, higher prices await the planted acreage report and a few weather scares. Too, as commented last week, December will fight to hold above 55 cents, but an eight million plus bale carryover is troublesome. Equity payments will be on the defensive until at least the summer.
The weekly export sales report finally added some decent news to the market as net export sales of upland cotton for the week ending 2-08-07 were 298,400 bales. Finally, China was the primary buyer with 82,500 bales. Yet, contrasted to last season when sales to China accounted for about fifty percent of weekly sales, current sales are only about thirty percent of weekly US sales.
Interest in US cotton has increased around the world as sales of Indian cotton for export have slowed. Next week should see another strong export sales report as sales have been made to a large number of locations, including China. The sell off of the May contract has uncovered more and more demand. However, with only two more trading sessions left until March first notice day, the May contract is set to become the lead contract.
With May futures trading near 52-53 cents, it is likely that more and more grain and soybean acreage will move out of cotton, especially in the dryland Oklahoma Texas area. That will lead to a rebound in the market as Chinese demand begins to pick up in the fall of the year and in the longer term.
However, for now the lack of Chinese demand for US cotton will keep the May contract on its heels. Again, higher prices await the planted acreage report and a few weather scares. Too, as commented last week, December will fight to hold above 55 cents, but an eight million plus bale carryover is troublesome. Equity payments will be on the defensive until at least the summer.
O.A. Cleveland, USA
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