While nearby cotton future prices fell last week, a lower US crop planting estimate has seen the May and December contracts strengthen.
The ICE March 2020 cotton futures contract ended last week 34 points down at 64.46 cents/lb, while the May position was 27 points up to 68.41 cents/lb and December 2020 was 20 points up to 68.95.
Analyst Louis Rose says there are a number of factors driving the cotton market - index fund rolling; the strength of the US dollar; last week’s relatively bearish USDA WASDE report; bullish cotton export numbers; and the increasing coronavirus numbers – but it is difficult to say which carries the most influence. “Market movement did not seem to be well correlated with figures found in either the WASDE or export reports,” the company noted.
The US National Cotton Council (NCC) has also released its annual Planting Intentions survey results predicting the forthcoming cotton crop area in the US. The Council estimates that the US crop area will be almost 13 million acres. While 5.5% down on the 2019 crop area, this is a higher estimate than the 12.7m acre 2020 forecast in January by the Cotton Grower magazine. The NCC has projected the US 2020/21 end season cotton stock at 5.86 million bales, which Louis Rose said is bearish.
Globally, the latest NCC report pencils in aggregate 2020/21 world cotton production at 118.9m bales, which is lower than the previous year’s output, and has increased its year-on-year consumption figure to 120.7m bales. A tighter supply and demand balance should be supportive of values.
US cotton exports dazzle
The latest US cotton export data “continues to dazzle” notes the analyst. Net export sales against 2019/20 were “modestly higher” for the week to February 6th. Shipments for the same period were down to 362,000 running bales against 410,000 the week before. “The US is 85% committed and 38% shipped vs the USDA’s export projection. Both sales and shipments were again ahead of the average weekly pace required to meet the USDA’s 16.5m bale export target. Rose is projecting US 2019/20 exports at 17.25m bales.
Sales against the 2020/21 season were around 57,000 running bales. But a large volume of sales cancellations - approximately 152,000 running bales is “mostly attributable to China”.
Brazil’s government agency Conab has increased its estimate of the new season cotton crop in Brazil to some 13 million 480lb bales against the USDA’s 12.7m bales forecast. “Although we have no doubt that production in Brazil this season should prove strong, we are pondering the notion that late sowing of the safrinha crop may ultimately result in current production projections proving overblown,” observed Louis Rose.