Good cotton: Bad times?

Cotton extended losses after entering a bear market yesterday as slowing demand and improving prospects for crops in the U.S., the world’s biggest exporter, added to signs of abundant supply.

In the week ended June 19, U.S. exports sales of upland cotton (NYBOT:CTN14) for the season that ends in July fell 98% from a week earlier, the Department of Agriculture said today. Ample rains in the past two months eased drought conditions in Texas, the leading U.S. grower, said Drew Lerner, the president of World Weather Inc. in Overland Park, Kansas. In the 12 months that start Aug. 1, domestic output may rise 16% from a year earlier amid increased plantings, the USDA estimates.

Futures slumped 12% this year. The bigger American crop will supplement bulging stockpiles in China, pushing global inventories to the highest ever, USDA data show. The glut increases chances for lower costs for companies including Hanesbrands Inc. and jeans maker Levi Strauss & Co.

“We’re going to have a very good crop, and that’s a problem,” Mike Seery, the president of Seery Futures in Plainfield, Illinois, said in telephone interview. “The market doesn’t have any good fundamentals, there’s just going to be a lot of supply.”

Cotton futures for December delivery dropped 1.1% to 74.46 cents a pound at 10:47 a.m. on ICE Futures U.S. after touching 73.71 cents, the lowest for a most-active contract since December 2012.
 

Bear Market
 

Prices yesterday closed 21% lower from this year’s settlement high of 94.75 cents on May 5, meeting the common definition of a bear market.

The U.S. economy contracted 2.9% in the first quarter, more than forecast and the worst reading in five years, the government said yesterday. Domestic farmers may collect 15 million bales in 2014, up from 12.91 million last year, the USDA said June 11. A bale weighs 480 pounds, or 218 kilograms.

“To have the economy shrink like that indicates that things are slowing down,” Sid Love, the president of Sid Love Consulting Services in Overland Park, Kansas, said in a telephone interview. “It isn’t necessary for consumers to buy clothes or a new pair of jeans. This will have an impact on demand.”

“Cotton costs will decline slightly in the second half of the fiscal year compared to the second quarter” ended March 30, Laurence G. Sellyn, chief financial officer at Montreal-based Gildan Activewear Inc., said in an earnings call May 2.

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