Cleveland: USDA Plantings Report Impacts Market
The December contract pushed above 70 cents last week, but not by much.
July 2, 2012
The new crop December futures contract moved above 70 cents, but the five cent 67-72 cent trading range contained all trading activity. While the trading range may stretch its wings a bit, don’t look for activity much more than one cent above or below the range in the coming weeks. The economic market fundamentals will continue to rule the market nest as record carryover stocks, as well as the stocks-to-use ratio, will keep a lid on prices. However, prices will find support from a smaller than recently forecast crop, both in the U.S. and around the globe.
Smaller than forecast U.S. plantings were supportive this week, but questionable U.S. export estimates were negative. The long term trend remains bearish, but the market has shown a remarkable ability to plug any bottom near the 65 cent level, basis December.
The USDA June acreage report, released at week’s end, indicated that U.S. growers planted 12.6 million acres; 12.4 million acres of Upland and 235,000 acres of Pima. The report was viewed as very supportive to the market as most were expecting plantings at 12.7 million acres. That compares to intentions of 13.1 million acres based on the March planting intentions survey and used by USDA as late as three weeks ago in its June supply and demand report. This represents a twenty-four percent decrease in plantings compared to 2011 planting of 14.74 million acres. The link to view the full report and a state by state breakout of all crops: http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1000
Note that the report indicates corn plantings were 96.4 million acres – the greatest since 1937. Soybean plantings were 76.1 million acres, the third highest ever.
The USDA weekly export sales report left the market in confusion as about half of the sales registered to China in the last two weeks were reported as cancelled. China canceled 618,300 RB sold for 2011/12, but added new purchases of 14,600 RB. Another 25,900 RB of Upland were registered to China for the 2012/13 season. The prior two weeks had recorded new sales to China of 755,900 RB for the 2011/12 season and 627,900 RB for the 2012/2013 season. This, coupled with USDA’s two major revisions to its Indian cotton data in the past five months, left some analysts wondering if USDA had more major corrections to come. Nevertheless, the market did not overreact to the change in export sales to China. Likely a more major concern regarding China was the rapid increase by China of imported yarn. Some Chinese mills have found it more economical to import yarn for resale than to spin their own. This is negative in that it does indicate a slowdown in Chinese consumption, but it can also partially be attributed to the fact that China is no longer the world’s low cost yarn manufacturer. Vietnam, Burma, Cambodia, Bangladesh and others have replaced China as the low cost yarn producers.
Mother Nature’s heat and drought have slowed the progress of the U.S. cotton crop. Crop conditions have deteriorated the past two weeks and relief is not in the ten day forecast. The market will be more sensitive to weather difficulties this year compared to 2011 because of lower U.S. and world acreage. The market will continue to work the 67 to 72 cent range.