With support well below current price levels, participants in both the physical and electronic world of cotton(NYBOT:CTU4) remain concerned. When comparing the new supply and demand numbers to those seen in August of 2009, the U.S. crop was 4.3 million bales smaller and world production was more than 11.7 million bales lower. Prices were trading below 60¢ yet one thing remained the same: Chinese imports.
Exactly five years later it is estimated that China will import 8 million bales, same as in 2009. Of course China as the key driving force for the market is not fresh news, but 8 million bales holds less value to a crop size that is much larger than that of 2009 so trading down to those levels is not out of the question. In August of 2009 cotton traded as high as 63.58¢ and as low as 54.97¢, averaging 59.27¢ for the month.
Although I do not believe they will stay down long, the downside potential still exists and demand will play a very important role going forward. While the Supply and Demand report overshadowed the Ginnings Report, it was slightly supportive for prices; only 1,250 bales have been ginned as of Aug. 1. Going back to 1993, the average number of bales ginned by this time comes to 70,200 bales, some years seeing more than 200,000 bales ginned.
With a tight supply situation nearby, prices should begin to stabilize and push higher if demand remains consistent or improves, especially if ginnings continue at this slow pace. As cotton comes off the branch in South Texas, the northern part of the state has a month or more of weather to factor into the equation and without some moisture seen soon, a possible reduction in crop size is possible.