Why Cotton's Price May Fray
Corner | MONDAY, MARCH 1, 2010
Long-term price prospects
PRICES HAVE ADVANCED STRONGLY in the past two
weeks, but the rally is starting to look a little ragged.
ICE Futures U.S. May contract cotton price has had a
tough time poking through the 80-cent-a-pound level
-- although it did last week -- following its nearly
straight-line rally since the Feb. 5 low for the year.
In the short term, May cotton prices are likely to pull
back to around 74 to 75 cents a pound until there is
fresh news to guide direction.
joined the other markets that plunged on Greek-debt
worries in February. Cotton fell to 67.80 cents on Feb.
5. But on Feb. 9, the U.S. Department of Agriculture
increased its export estimate more than expected and
lowered total supplies, known as ending stocks. That
was a bullish signal: Cotton was too cheap, and supplies
addition, ICE data released Feb. 9 showed that speculators
had virtually no position in cotton. They then started
buying, sparking the rally. Friday, May cotton settled
at 82.46, up 4.4% on the week.
For now, cotton appears fairly valued at just under
80 cents, market watchers say. Mills that bought cotton
to satisfy foreign demand have enough, and speculators
have amassed about 20,000 long, or bullish, contracts,
according to ICE data. Sharon Johnson, senior cotton
analyst at First Capital brokerage in Atlanta, says
May cotton can easily fall back to the 74-to-75-cent
while cotton prices could get a bit threadbare here,
she's not ready to get bearish for the near term, as
speculators could easily double their bullish position,
and the market will be influenced by other commodities
and dollar action.
PRICES COULD fall sharply, however, particularly for
the December contract, which represents the autumn harvest.
high cotton prices have likely lured farmers back to
planting fiber over food this year. The USDA said recently
that it's projecting 2010 U.S. cotton acreage to be
up 1.5 million from 2009, to 10.5 million acres -- a
15% hike. That comes at the expense of grain acreage,
which had supplanted traditional cotton land when grain
prices were higher in recent years.
Hackett, president of advisory firm Hackett Financial
Advisors in Boynton Beach, Fla., says the rally came
early enough to allow more farmers to consider cotton.
On March 31, USDA will release its prospective plantings
report, a survey of farmers' planting intentions for
spring crops. Hackett's stance: "I would short
the December cotton contract. If we get three million
acres versus the 1.5 million, decent weather, trendline
yield and reasonable demand expectations, we could double
ending stocks in the next cycle. That's not record supplies,
but it could pull back prices to 50-to-55 cents."
Capital's Johnson agrees that December cotton could
fall that far, noting the chance for good yields due
to great planting conditions from California to the
Carolinas. Plentiful soil moisture during planting is
"as important as higher acreage," she says.