Cotton futures, temporarily, pulled out of their three-week losing trend after
the US unveiled its best week for export sales in four months, only for the
rally to founder on ideas of a reversal in Texas drought.
Cotton for July bounced 1.5% at to regain the 90-cents-a-pound
mark, while the new crop December contract rebounded 1.0%, after the US
Department of Agriculture estimated US exports of the fibre last week at nearly
517,000 running bales, old crop and new combined.
That was 11 times the sales the previous week, and the first
time since January that volumes had exceeded 500,000 running bales.
And, signally, more than half were purchased by China, the
top cotton importer, whose appetite for buy-ins is being closely watched in the
light of subsidy reforms aimed at unwinding a market imbalance which has left
the state with huge inventories of the fibre.
The USDA foresees China's imports falling by 37% this season
and by a further one-third in 2014-15, which starts in August.
"China has been seen curtailing imports, but there might be
a question mark about that, given the amount of cotton they bought in this week's
figures," said cotton broker Keith Brown.
However, the rally rapidly reversed, sending July cotton to
88.02 cents a pound in midday deals in New York, down 1.4% on the day and the
contract's weakest since early March.
December cotton for December hit 81.30 cents a pound, down 0.7%,
falling below its 50-day moving average for the first time in early March.
The selling was viewed as being sparked in part by a technical
factor, and the failure of the December contract to reach, or exceed, its high
of the last session, at 82.71 cents a pound.
Investors are especially reluctant to buy given ideas that crop
conditions appear to be improving, albeit from a low level, in Texas, the top
US cotton producing state.
'Deep stress from
"The story is all about whether we are going to get rain in
west Texas," Mr Brown, at Keith Brown & Co, told Agrimoney.com.
"The Texas situation could take away 2m bales" from US production
At Price Futures, Jack Scoville said that "conditions
continue to deteriorate in the Texas Panhandle", where crops are "under deep
stress from drought conditions that should also impact irrigated crops".
However, "some rain is possible by the end of the week".
Official data on Thursday showed a small decline in the
proportion of Texas rated as being in drought, by 0.7 points to 72.3%, but a
deepening dryness in areas where lack of rainfall remains a problem.
However, Commodity Weather Group reported that overnight, west
Texas saw thunderstorms which "were locally heavy near the New Mexico border
west and southwest of Lubbock".
In Amarillo, in the Texas panhandle, "locally strong
thunderstorms occurred where more than 2.00 inches of rain may have occurred".
The extent of rain over the weekend would play a significant
part in cotton prices ahead, Mr Brown said.
However, it appeared likely that prices might fall further,
for now, "back to the upper 70s" cents a pound for December contract, he said.
"The path of least resistance is downward."