Mills hope for lower cotton prices

06 Oct '07

3 min read

Cotton prices continued their slide this week, but demand also maintained its distance from the current sell off. With next week's USDA world supply demand on the horizon mills are hoping a larger world crop will push prices lower. Another 200 point drop in the New York December would add to demand while a 300 point dip would likely unloosen all the pent up demand currently under the market-including physical purchases as well as the increasing number of needed futures price fixions.

A drop to near 58 cents could be justified, but in the absence of an increase in the size of the world crop, the 60 cent level will be difficult to slide below. Another 100-200 point drop is written all over this market.

Just as many outside China have expected to see their consumption begin to slow, the Chinese government confirmed that domestic use was expected to reach 54 million bales this year, up some 3.2 million from last year. If this estimate is to mature, then Chinese imports, with almost certainty, must move beyond the current USDA estimate. Unless China elects to further draw down its stocks they would have to import about 19.3 million bales. Too, this would further tighten 2007-08 world ending stocks, already forecast to be the lowest in 14 years.

As commented a number of times the past few months, this would add pressure to move cotton prices higher, but world stocks would still be above 50 million bales, far too high to allow any near-to-intermediate term price increase. Nevertheless, it is becoming increasingly clear that world ending stocks for world grain and oilseed are decreasing at multiple times faster than world cotton stocks.

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