Cotton futures surprised many investors by rebounding on
Friday despite widespread cautions that revisions in a key US report lifting
supply estimates to a record high were downbeat for prices.
The US Department of Agriculture, in its latest Wasde crop report,
raised its estimate for world inventories of the fibre at the close of 2012-13
to 79.11m bales.
The figure upgrades to estimates for Indian, Pakistani and
UK crops, besides a 2.0m-bale downgrade to the forecast for use in China, the
top consumer, where "the high domestic support price continues to erode offtake",
the USDA said.
And, besides being a record in quantity terms, the stocks
number represents an all-time high too when compared with consumption to form
the much-watched stocks-to-use ratio which, in indicating the competition
needed to secure supplies, is a key pricing metric.
The world will end the season, next July, with inventories
sufficient for a further nine months' demand, before a single bale of 2013
crops is factored in.
'Confirm our bearish outlook'
Indeed, the data were seen as boding ill for values by a number
of commentators, including Rabobank which said that the estimates "confirm our
bearish outlook for the current season, and that the market needs to signal to
northern hemisphere growers to sharply reduce area for the 2013-14 crop".
At Commonwealth Bank of Australia, Luke Mathews, terming the
stocks-to-use ratio "staggering, said that "the outlook for cotton prices remains
And Goldman Sachs analyst Damien Courvalin cautioned that the
bank saw "downside risk" to forecasts for prices standing at $0.70 a pound in
three-months' time and $0.75 a pound on six and 12-month horizons.
"Cotton inventories in both the US and globally continue to
swell to record levels," he said.
'I am perplexed'
However, New York's benchmark December cotton contract,
while falling nearly 2% in the last session after the report was released,
clawed back ground on Friday, standing 0.5% higher at 71.03 cents a pound in
The recovery surprised many investors, including Keith
Brown, at Georgia-based brokerage Keith Brown & Co, who said he was "amazed
with what we are seeing.
"I am perplexed. We keep thinking the market ought to take a
tumble to about the low-50s cents a pound.
"We do not need markets signalling to farmers to bring on
The fibre's resilience could be a knock-on effect from high
prices of corn and soybeans, with which the crop competes for acreage in many countries,
including the US, and of which prices are by historic standards extremely high.
"We see $8-a-bushel corn, $16-a-bushel soybeans. Maybe that equates
to 70-cents-a-pound cotton," Mr Brown told Agrimoney.com.
If so, with South America expecting a large soybean crop, "we
could see cotton lose, but maybe not until early next year", when the region's row
crop harvest begins.