The rally in cotton prices stalled amid cautions that the
cut in US sowings in prospect this year may prove as drastic as forecast, and that
Chinese demand may further disappoint as well.
New York's December 2013 cotton contract was on course to
fall for the first time in 10 sessions, breaking a winning streak supported by
waning ideas for US growings of the fibre this year.
On Monday, the US Department of Agriculture, in preliminary
estimates, forecast a 23% drop to 9.3m acres in domestic sowings this year of upland cotton - which typically
accounts for all but about 200,000-300,000 acres of overall area, with the rest
going to plantings of high-quality, extra long staple varieties.
A survey by the National Cotton Council showed overall
cotton plantings dropping even further, by 27% to 9.01m acres, a 30-year low,
as farmers switch to corn and soybeans, which offer better return prospects.
However, Commerzbank cautioned that such seeding forecasts
were based on price assumptions which now looked outdated, given pullbacks in
prices of corn, which dropped back below $7 a bushel on Tuesday, and soybeans, while cotton prices
New York's benchmark March 2013 contract is up nearly 10%
this year, including a fall in Tuesday's trading of 0.6% to 82.41 cents a pound,
as of 09:45 local time (14:45 UK time).
The bank said: "Neither survey takes the price increase
observed since mid-January into account, with the result that the acreage
reduction will probably turn out to be somewhat smaller" than the USDA or National
Cotton Council are forecasting.
OK – for now
Separately, Australia & New Zealand Bank, was reassuring
over the cotton rally for now, saying that it was justified by evidence of
restocking in many commodities, with improved economic confidence prompting "a
scramble to rebuild global inventories".
"As financial market risk diminished from Europe and key economies
showed signs of stabilising, the inventory cycle switched," ANZ senior ag
economist Paul Deane said.
Furthermore, cotton prices were gaining support from rising values
of rival polyester, up 5% over the last month, repeating seasonal firmness which
typically lasts to March/April.
"This seasonal strength in synthetic fibre markets in coming
months should provide some support to cotton prices short term," Mr Deane said.
"Even after recent price gains, cotton's valuation to synthetic
fibres is undemanding."
However, he questioned whether the revival in cotton prices
was a "false dawn", as demand wanes in China, where price guarantee mechanisms
aimed at supporting farmers are undermining the competitiveness of mills.
"Cotton prices will lack conviction post the first quarter,
as the market faces downgrades to global cotton consumption," Mr Deane said.
"Emanating from existing cotton policies in China, current
market forecasts for cotton consumption look too high.
"A real risk remains that global cotton stocks are
progressively increased across the course of 2013 as Chinese cotton mill
consumption and imports underwhelm."
New York December cotton futures, which closed the last session at a nine-month high, stood 0.7% lower at 83.26 cents a pound.
The USDA, in its initial projections for 2013-14, forecast farmgate prices averaging 68.0 cents a pound.
"These USDA projections make current forward prices look very attractive," said Luke Mathews at Commonwealth Bank of Australia.