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Cotton futures fall off cliff by testing new lows

13
Oct '08
Cotton, stocks and most commodities suffered nightmare sessions last week. The ripple effect emanating from the global financial crisis had a crippling effect on all the markets worldwide. Cotton futures prices literally fell off the cliff as they began the week by dropping the permissible limit and posting new contract lows - every day this past week.

They ended the way they began - limit down. Any fundamentals that might normally been considered supportive such as a pick up in export demand, were overwhelmed by problems and fears coming out of the stock market. For the week December cotton lost 797 to 17 month lows while December 09 lost 829 for the week. Limits Monday will be expanded to 400 points.

Crude oil dropped $16, gasoline 27 cents. While gold dropped over $100 per ounce from its weekly highs set Friday morning, it still gained $26 an ounce for the week. Silver on the other hand being an industrial commodity, lost over 70 cents per ounce falling almost $3 per ounce from its Friday morning high. Failure at the morning highs, led to an unbelievable 1,000 point swing to the downside by the Dow Jones Industrials.

The emphasis of October supply/demand report was on the dramatic global economic slowdown. USDA slashed their estimate of the US export potential dramatically. The 1.5 million bale cut was the biggest month-to-month cut in my memory. The cuts in U.S. production were mainly in Louisiana and Mississippi directly attributed to Gustav and friends. The bottom line was an increase in the projected carryover from 4.9 million bales to 6.2 million bales.

Globally, USDA increased their estimate of the Chinese crop by a million bales and reduced their import needs by a like amount. Forecasts for world consumption were reduced in several countries, as the crisis in world financial markets is projected to cut consumer spending and purchases of textiles. Consumption was lowered in China, Turkey, Bangladesh, India, Pakistan and Russia.

The USDA report was obviously bearish from a statistical standpoint. Normally, at least on the surface, this might be considered as having been discounted by the market since we have had a 15 cent per pound break since this time last month. By the way, ½ of that break has come in the last eight sessions just since the first of October. However, we are not in normal times so one can have any confidence as to what this report really means to the market because For now, the stock market meltdown overshadows cotton fundamentals.

The export sales report this past week indicated a pleasant surprise in export demand; not that it seemed to make any difference to the market. This weeks report showed sales for the week ending October 2 more than double the previous week at 272,700 bales. Talk on the street was that export inquiries began to pick up appreciably last Tuesday and Wednesday night but predictably disappeared Thursday night prior to Fridays USDA report.


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