The past week was an excellent lesson in human emotions, panic, economics, the global economy and protectionism. Just as the market often does ¦It gives the test first and the lesson afterward. Cotton and other commodity and equity markets came away a bit scarred, but still with a solid base of support for a promising year.
Cotton prices corrected after limit up moves two weeks ago with a limit down move. As stated two weeks ago, cotton prices are headed higher, but with some bloody street fights along the way. Too, the cotton market will remain subject to considerable volatility.
The pressure on cotton prices this week was associated more with the U.S. and global economies and with the other commodity markets more so than with actual cotton fundamentals.
The well documented bursting of the U.S. housing/financial speculative bubble months ago culminated with a panic in the Asian equity markets at the beginning of the week and sent the U.S. equity markets on a free fall. That free fall sparked a panic in the agricultural commodity markets as speculators pulled vast sums of money out of all markets due the panic in the equity markets.
The quick drop in grains and oilseeds sparked a corresponding drop in the cotton market as speculative funds exited the cotton market in mass-most likely the single biggest exit in a single day in the history of the Cotton Exchange.
The Weekly Export Report could almost be renamed to the “Weekly Bearish Report.” Recall the massive sales recorded in last week’s report, but with most going to Mexico, a captive U.S. market, the big numbers were meaningless. Net export sales for the week ending January 17 totaled a rather anemic 141,000 RB with Upland sales accounting for 108,400 RB and Pima sales of 32,600 RB.
Turkey was the major buyer of Upland with 41,200 RB; followed by Peru and Indonesia. Pima buyers were Pakistan at 10,700 RB; China and India. Again, note the absence of Upland sales to China.
Export shipments totaled 188,300 RB with 157,800 RB being Upland and 30,500 RB of Pima. Primary destinations of Upland were Turkey, 28,800 RB; followed by Thailand and Indonesia. The primary destinations for Pima were Indonesia at 8,600 RB; Taiwan and Germany.
Granted, next week's export report could total 500,000 to 700,000 bales as a result of this week's sell off. Likewise, the current anemic report also reflected a week with New York above 70 cents all week. Next week's report will likely reveal that mills have elevated their price expectations and are now holding off for prices under 70 cents, basis the March New York contract.
While mills are short cotton supplies in many instance; they nevertheless, have seen a bottom in March futures and will be watching the May contract move higher; and face the next round of buying near the 72-73 cent level, basis May. Yet, USDA’s current export estimate of 16.0 million bales will be hard pressed to total more than 14.5 million. The result will be only a limited decline in U.S. stock and moves the truly bullish contract month to May 2009, rather than December 2008.
