Page 7 - 02 Cotton SA September 2013

Nuus - News

How high can this Cotton market go?

Multiple factors currently impacting supply and demand.

h, the cotton market! Here she goes Should U.S. stocks continue to fall below the The unknown as to what China will eventually
again, spiralling onward and upward current USDA estimate, the futures contract will do with this cotton does hang over the market.
Atoward the sun. Of course, history shows trade closer to one dollar. But we have discovered that prices can climb to
that I was one that had expected the price REAL WORLD NUMBER 1. In the short term, a dollar (well, almost) in spite of that overhang.
advancement to fail at the 89-to-90 cent mark. forget that export sales have turned lower Nevertheless, China must move that Reserve
Yet, I did o er that if it broke 90 cents, the next with the move into the 90’s. The shrinking U.S. cotton to market at some time. This will likely
objective was 95 cents. With the market sitting crop is one of the major causes of the price be done primarily by attrition, as production
above 93 cents, the ICE New York December advancement. That means with less cotton in China is gradually lowered over a number of
2013 contract does have 95 cents written all being produced, there will be less cotton to years and cotton production shifts from the east
over it. While I did not expect such, we had laid export anyway. In that regard, mills are not and northeast to the great northwest region of
out the scenario that would allow the market backing away from cotton. Rather, mills cannot China. Such a project will take time, but will
climb to the current level and possibly higher. obtain the volume of cotton they need. also continue to be a background bullish factor
Do not think that prices cannot go higher, REAL WORLD NUMBER 2. The other scenario in the cotton market – i.e., a governmental
because they can! How? Here’s the laundry facing the world cotton market is the well-known directive to reduce cotton plantings.
list: continuation of the West Texas drought; China situation. Record volumes of cotton are These two real world conditions will continue to
continued production problems in China in storage, but are locked up without any key exist – and must coexist with each other – most
(especially East China); continued moisture available to the warehouse. China holds some likely for a few more seasons. The net e ect is
problems in the Southeast U.S.; and continued 60.0 million bales in its Strategic Reserve, and positive for grower prices received. The saying
moisture problems in the U.S. Mid-South. most of that is not available to the market. With that big crops get bigger and small crops get
It was the possibility that this set of factors respect to supply availability to the Chinese mills smaller can be accurately challenged.
could come together that kept the market or the world export market, that cotton does Yet, the 2013 crop, small as it is, is getting
battering away at the 89-cent door. It was the not exist. Additionally, China is set to produce smaller. And as it gets smaller, the New York
fruition of the occurrence of all these factors another crop that, along with raw cotton futures contract will feel upward pressure.
that pushed prices higher, as the market imports and cotton yarn imports, will exceed the By Dr. O. A. Cleveland, a Professor Emeritus,
realized that U.S. stocks would fall below 3.0 level of cotton demanded by Chinese mills. The Department of Agricultural Economics,
million bales and may even fall to some 2.3-to- net e ect will likely further increase the supply Mississippi State University – as appeared on
2.5 million bales (the current USDA estimate of stocks held by the Chinese government – and Cotton 24/7.
for 2013-14 ending stocks is 2.8 million bales). isolated from the market.

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Katoen SA Cotton 7 September-December 2013