Has cotton market succumbed to March 'halt' again?

Cotton prices soared to a two-year high only for support from lower-than-expected US ginnings data to fade, leaving futures in a retreat which raised ideas they might again have set a high in March.

Cotton futures for May soared 3.4% to 97.35 cents a pound in early deals in New York, the highest for a spot contract since February 2012, on strength attributed to follow-through buying from US Department of Agriculture statistics showing ginnings from last year's domestic crop at 12.9m bales.

That was below the 13.2m bales at which the USDA has estimated the harvest.

"In other words, the lowest US crop in four years was actually even lower than previously assumed," Commerzbank said.

"This confirms a concern that has been plaguing the market for some time - high-quality US cotton is in short supply at present."

Even before the ginnings data, the USDA "had already assumed that US stocks would decline to a very low level by the end of the season", of 2.8m bales.

A simple pass through of the lost 300,000 bales implies year-end inventories in the US, the top exporter, at 2.5m bales, the lowest figure bar one on records going back to 1965.

'Ran out of willing buyers'

However, the May contract retreated in later deals to hit 90.83 cents a pound at one point, down 3.5% on the day, behaviour which led broker Keith Brown to suggest that the market had followed a historical pattern of setting highs, or at least "halts", in March.

"It looks like we ran out of willing buyers at these higher levels," Mr Brown, of US-based Keith Brown & Co, told

"The market is now coming down like water to find its levels.

"It looks like we might have set a top up there. In the last few years, March has very often seen the peak of the market. We may be seeing an anniversary trade."

March 'halts'

Last year, cotton futures, on a front month basis, peaked on March 15 at 93.93 cents a pound.

And while 2012 did not see a March rally, 2011 saw prices peak on March 7 at the record high of 227.00 cents a pound.

In 2010, while March did not witness a year-high it did mark the end of a strong rally, heralding a sideways market through the summer.

Acreage estimates

However, seasonal forces this year may yet be trumped by US Department of Agriculture data, with the release on March 31 of acreage estimates, over which there are considerable uncertainties for cotton.

While the USDA has forecast 11.5m acres, Informa Economics on Tuesday came out with an estimate of 10.955m acres.

"There has been a lot of talk of up to 13m-14m acres," Mr Brown said.

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