By After gaining a total of 173 points the first two days this week, cotton futures gave it all back, and then some, the next two sessions at the Intercontinental Exchange (ICE). The week began with cotton on firm ground as the March contract traded as high as 83.80 cents per pound before easing back to the middle of a 114-point range and settling at 83.63 cents, up 69 points.
The market's strength may have been due to a number of factors including a weaker U.S. dollar, some export inquiry, and comments about lower Chinese cotton acreage this year. Talk among traders and analysts also focused on whether or not USDA would continue to reduce its estimate of 2013-14 U.S. cotton production in its January reports.
The rally continued Tuesday as speculators returned to the screen, according to one market newsletter. March cotton spent most of the session trading higher, hitting 85.03 cents at one point before settling at 84.67, up 104 points. The market strength may have rested on the China Cotton Association's forecast of an 8.9 percent decline in 2014 plantings. The previous day, Beijing Cotton Outlook estimated plantings would be down 9.0 percent. One notable feature of Tuesday's ICE session was cotton's attempt to test resistance above the 85-cent level.
Then, the market came unraveled Wednesday as cotton futures posted triple-digit losses when sellers returned. March cotton fell to 83.02 cents per pound during the session before settling at 83.14, down 153 points, as volume surged to an estimated 26,400 bales compared to Tuesday's estimated volume of 15,400. A stronger dollar, index fund rebalancing, and resistance above 85 cents may have lead to the steep decline in futures prices.
March cotton opened Thursday's session on modest gains before trading on both sides of unchanged after mid-morning. The contract traded as high as 84.63 cents and as low as 82.73 before settling at 82.81 cents, down 33 points and its lowest since Dec. 23. Some traders suspected continued index fund rebalancing and another weak export sales report may have contributed to the market's weakness.
Net upland export sales of U.S. cotton totaled 68,100 bales in the holiday-shortened week of Jan. 2, according to USDA, down 21 percent from the previous week and 62 percent from the four-week average. Turkey, Taiwan and Pakistan were the featured buyers. Export shipments for the week totaled 211,300 bales, up 48 percent from the previous week and 37 percent from the four-week average. Turkey, China and Vietnam were the primary destinations.
The spot cotton market continues to be active as producers sold 50,890 bales online in the week ended Jan. 9 compared to 57,841 bales the previous week. Average prices received ranged from 75 to 77 cents per pound compared to 76 to 77 cents the prior week.
Expectations for a bullish monthly supply and demand report from USDA were unfulfilled. Surprisingly, the department raised its estimate for 2013-14 U.S. production by 118,000 bales compared to the previous month's data. Domestic mill use was unchanged, and exports were raised 100,000 bales. Consequently, estimated U.S. ending stocks were unchanged. The department also raised its estimate for world production and slightly lowered estimated world consumption, resulting in a 1.2-million-bale increase in ending stocks.
Meanwhile, conflicting estimates for 2014-15 U.S. planted acres emerged from the annual Beltwide Cotton Conference this week. According to a cotton magazine's annual survey of planting intentions, acreage will decline approximately 1.76 percent this year; however, another survey indicated an increase of 8 percent, and a speaker at the conference predicted a 5 percent increase. Weaker corn and soybean prices and a 13 percent rise in cotton prices this past year were credited for the estimated increases in cotton acres.
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