11 April 2011
Cotton futures sharply rebounded in the last week in New York, due to speculative buying. While a looming lack of supply may boost prices up to higher prices, demand is however depressed by a fall in yarn prices on the international market, with large stocks of cotton fibers and yarns available in China.
New York cotton futures last week rebounded, with the nearby contract surging 7.42 cents per pound by Friday evening, or 3.79%.
Speculative buying is apparently behind the rise in prices, with volatility also back to the market, as a result.
The US Department of Agriculture (USDA) released a relatively bullish monthly report, lowering global output for the current crop and raising its consumption forecast.
Ending stock were further reduced with a lower stocks-to-use ratio, as a consequence (see our below tables).
The cotton market looks now trapped between a depressing fall in yarn prices and a looming lack of supply which could boost prices in the coming period.
With current crop fully sold in the United States, physical sales are for instance already surging for the next crop.
US export sales reached 268,200 running bales in the week to March 31st for 2011-12 crop, which is a very high level at this stage of the year.
Such an anticipation in the buying process actually reflects a rush for long-term coverage and fears of a lack of supply in the next season.
Once again, China is behind market trends, already booking large quantities from the next US crop.
Cotton plantings in China could be lower than expected after wheat prices reached extremely high levels in the last weeks, with farmers therefore shifting from cotton to wheat.
Over the very short term, yarn producers and cotton importers in China are currently confronted with falling domestic demand and are apparently selling their cotton stocks on the international Asian market.
Physical prices are therefore falling while also depressed by the lower level in yarn prices.
In India, cotton prices began declining from their extremely high levels, although yarn exports are again allowed since April 1st.
Indian yarn exporters are actually confronted with a lack of demand on the international market.
They are now asking the government to further restrict cotton fiber exports in order to get lower cotton prices on the domestic market.
On the contrary, New Delhi may now decide to raise its seasonal quota by 1.5 million bales of 170 kilos up to 7 million bales, expecting a sharp increase in Indian cotton production in the current season, ending September 30th.
Such a decision would result in lower prices on the international market.