Firm US export sales, and measures to prop up the world’s biggest economy, revived cotton futures, which had looked set for a negative close after a further recovery in India’s monsoon added to the pressure on prices.
US cotton export sales hit 317,535 bales in the week to last Thursday, the highest figure for nearly three months.
Signally, the sales included nearly 266,000 bales bought by China, the top consumer, where periodic rumours of a release from its huge stockpile have depressed values.
The export announcement, coupled with the Federal Reserve’s announcement of a third round of monetary policy to boost the US economy, were credited with helping cotton futures to a positive close, after further evidence of a recovering Indian monsoon undermined prices earlier.
Improved harvest hopes
Official Indian meteorologists said that monsoon rains exceeded average levels for a third successive week in the seven days to September 12, coming in 21% above typical levels.
Rains in parts of Gujarat – the main cotton-growing state in India, the second-ranked producing and exporting country – reached nearly three times the norm.
While leaving the state’s rainfall some 30% short of average since the start of the monsoon season, at the beginning of June, the rains raised hopes for a late recovery in sowings, as highlighted on Wednesday by the US Department of Agriculture.
The revival in rains last month “encouraged growers to continue planting”, the USDA said, lifting by 1.0m bales to 24.5m bales its forecast for Indian cotton production in 2012-13.
“The increase is primarily due to higher-than-previously-projected harvested area.”
‘Outlook for cotton subdued’
The USDA revision was made in Wasde crop report over which sent New York cotton prices 2% lower, and continued on Thursday to attract cautions of weak prospects for values.
“The outlook for cotton remains subdued,” Luke Mathews at Commonwealth Bank of Australia said, citing in particular weakened expectations for world demand, which the USDA downgraded to 107.6m bales for 2012-13.
While representing an increase of 3.3m bales year on year, the figure is still well below historic levels. Consumption reached 118.6m bales three seasons ago.
“The global cotton demand outlook remains bearish for prices,” Mr Mathews said.
Prices to fall?
Indeed, with demand hopes downgraded, the USDA raised its estimate for world cotton inventories at the end of 2012-13 to a record 76.5m bales, more than eight months’ worth of global demand, and signalling little pressure on buyers to pay up for supplies.
The Wasde report “was bearish [for] cotton prices as it featured higher global ending-stocks despite lower US production”, Goldman Sachs analyst Damien Courvalin said.
“With the USDA forecasting global cotton inventories at a new record high, we reiterate our three-, six- and 12-month cotton price forecasts of 70 cents a pound, 75 cents a pound and 75 cents a pound, slightly below the current forward curve.”
Rabobank, terming the Wasde cotton data “mildly bearish”, said that revised world estimates “confirmed the expectations for an oversupplied market in 2012-13 and increased concerns about the falling cotton demand in China”, the top consuming country.
“We continue to anticipate the anaemic demand and large oversupply to weigh on prices in the next quarter.”
However, New York cotton for December recovered from a day lot of 72.83 cents a pound to end at 73.53 cents a pound, a gain of 0.3%.