2010-08-25 / Farm & Ranch

Cotton Market Weekly

A Service Provided by Plains Cotton Cooperative Association August 19, 2010

Cotton prices rose for the first time in four days as signs of strong demand for U.S. supplies easily trumped disappointing economic news. While equity and financial systems were drowning in dismal data, cotton futures prices on the Intercontinental Exchange (ICE) ran up over 100 points on a better-than-expected export sales report and an optimistic overall demand outlook.

In the week ended Aug. 12, USDA reported U.S. exporters sold 447,400 bales of upland cotton for the 2010-11 marketing year, almost doubling analysts' estimates. Featured buyers included Mexico, Brazil, and Turkey.

Export shipments of 238,700 bales were mainly to China, Mexico, and Turkey. Cumulative cotton exports now stand at 41.5 percent of the USDA forecast for 2010- 11, well above the five-year average of 27.1 percent.

"This fast pace of sales exacerbates the existing shortage of cotton in the pipeline and pushes the date at which existing stocks will once again outweigh commitments further into the future," an analyst explained. "Mills seem to be intent to book their requirements for the first and second quarters fearing that certain qualities and shipping dates might be difficult to obtain if they wait too long."

Meanwhile, market observers still are keeping and eye on events in Pakistan, the world's fourth largest cotton producer. With recent floods affecting up to 15 to 20 percent of the country, cotton production certainly will be affected. Some analysts are calling for imports to double this year versus 2009.

USDA currently pegs 2010- 11 Pakistan imports at 2.3 million bales, up from 1.7 million the year before. A doubling oflast year's imports would add 1.1 million bales to the government's current estimate. One added question regarding Pakistan may be whether the floods also will disrupt the processing, manufacturing and transportation infrastructures which would tend to shift some import demandto Indonesia, Bangladesh, Vietnam, and other textile production areas. Unfortunately, no questions can be fully answered until the floodwaters subside.

Closer to home, the cotton harvest has begun in South Texas, and industry observers are expecting near-record yields. As the season gets underway, many gins are beginning to collect modules on the yard or in storage areas to ensure all-weather access to cotton for processing. The module storage system has decoupled ginning from harvesting, providing an economical and safe method of storing seed cotton.

Meanwhile, expectations still are high for cotton production prospects in northern Texas. Although the crop still is young, cotton industry experts on the Texas High Plains cautiously predict the 2010 cotton crop will produce substantially higher yields than last year. According to the USDA Crop Production Report released Aug. 12, U.S. cotton production forecasts ofmore than 18 million bales this season are up 52 percent from 2009. Texas could see a record high of 8.8 million bales and, of that number, roughly 6 million bales will be produced in the High Plains.

A low number of abandoned cotton acres differentiate the 2010 crop from those of the last several years as USDA pegs the abandonment rate at only 3.6 percent. The High Plains typically has a significantly higher abandonment rate due to drought and other adverse weather conditions. However, cotton producers there are not yet celebrating as very little precipitation has been recorded since the region received large amounts of rain in July. The dry conditions soon could adversely affect the diyland cotton in some areas.

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