USDA’s supply and demand report took a bit of steam out of the market that had seen December pushing 97 cents early this week, but the new crop 2012 December New York contract ended the week just above 92 cents. The 52-week high for December was 107.20 cents and the low was 83.25 cents.
The 97-cent level seen earlier this week became a bit too top-heavy for the market, as not only was the supply and demand report negative, but grower hedging was also holding prices down.
The 52-week high/low range should hold steady as the market moves to the spring planting period. Most trading is expected to occur in the mid-90-cent range. Traders continue to worry about the world economy, lagging world cotton demand, a likely double-digit percentage drop in Chinese planting, and the continuation of the 2011 drought in the southwestern United States. To make things worse, long-term weather forecasts indicate that there is potential for that drought to spread.
The February supply and demand report was a bearish surprise. USDA reduced its forecast for U.S. and global consumption, and increased its forecast for US carryover and world production. These changes led to a big increase in carryover. U.S. domestic consumption was lowered for the second consecutive month and is now forecast at 3.5 million bales. US carryover is targeted at 3.8 million bales, representing a supply-to-use ratio of 26%.
World consumption is expected to be about 109.8 million bales. Carryover stocks are forecast at 60.8 million bales, up 2.4 million bales from the January estimate. It should be noted that this represents a 14-million-bale increase above the previous year’s carryover 47 million bales. Global stocks-to-use ratio stands slightly above 55% and is sharply higher than the prior two years.
The new December crop has excellent support at slightly more than 90 cents, but prices could drop down to the mid-80-cent level before beginning a new rally.