COTTON --
Daily Commentary -- January 20 The cotton market ended higher Friday, setting a new 2-month high. Futures were solidly higher this morning, fell hard, and then rallied ahead of the close to set a new high. March was up 43 points at 98.60 cents and May added 64 points to close at 98.63 cents.
The weekly export report was friendly for prices this morning, showing the most sales since the early November buying spree by China. Sales of 189,412 running bales, though not impressive, were still solid and an improvement over the last 2 months. Shipments were good at 234,156 running bales, which has them progressing well.
Traders were positioning themselves for China's Lunar New Year holiday next week, which will likely have the U.S. markets a little bit on hold. Prices are pushing toward the psychological $1 mark. Investors appear to be eyeing cotton again, and it will be even more attractive if China's supply does in fact look to be smaller than expected.
Tuesday China's National Bureau of Statistics (NBS) reported the 2011 crop at only 6.6 million tonnes, which is equal to 30.3 million bales. This compares to USDA's 33.5 million bale estimate. China's NBS has lost some credibility the last few years by repeatedly being too low on its estimates. However, this is enough lower than USDA that it might still indicate that USDA's estimate is too high.
Also bullish was news that China's plantings are estimated to decrease 10.5% in 2012, according to the China Cotton Association. Previous forecasts by the China National Cotton Reserve had estimated a decrease of 8.2%. The new forecast puts cotton plantings at 12.85 million acres (5.2 million hectares). As the world's top cotton consumer and the #1 export destination for U.S. cotton, this was very supportive of prices as traders hope China's demand for U.S. cotton will increase. The demand outlook for cotton has been very uncertain the last nine months, largely due to swings in China's buying interest. Stocks look to increase from previously tight levels, but if demand is weak cotton stocks could get much bigger much faster, weighing heavily on prices. Lower plantings in China will help balance this.