Howell: Cotton trims steep losses from fears nuclear crisis may slow growth

Risk aversion and fears of slower world economic growth pressured cotton futures in tandem with pounding outside markets last week in the aftermath of the earthquake, tsunami and ensuing nuclear crisis in Japan.

The market for the week ended Thursday shed 886 points to 192.12 cents in spot May, 813 points to 182.46 cents in July and 427 points to 120.96 cents in December. At Thursday’s low, May had lost 34.17 cents or 15.8 percent from its contract high just eight sessions earlier.

With outside markets tumbling amid uncertainty about the impact of Japan’s disasters on the global economy, an analyst commented, cotton traders adhered to the adage: “When in doubt, get out.”

But cotton, which had closed with steep losses three consecutive days and in the red six of the last seven sessions, mounted a sharp rebound from tenuous support areas as the period ended.

Old-crop deliveries finished up the 700-point daily limit as most commodity and equity markets surged and the dollar weakened amid diminished fears about the global effects of the volatile nuclear crisis. Mill fixations were noted on the steep decline.

Limit moves in cotton are commonplace these days. May has made 20 in 21 sessions, counting a swing from limit up to limit down in one session as two. Only two sessions haven’t produced limit moves since Feb. 7.

The 19-commodity Reuters-Jefferies CRB index roared to a 3.1 percent gain on Thursday, the largest daily percentage rise since August 2009. The index had fallen by almost 7 percent over the previous six sessions.

Cash trading on The Seam’s grower-to-business exchange, inactive for four consecutive sessions, dwindled to a mere 87 bales, smallest weekly turnover since Aug. 6. Prices averaged 190 cents, reflecting premiums over loan redemption rates of 133.96 cents.

The cotton market shrugged off a USDA report showing net cancellations of U.S. export sales for delivery this season of 50,100 running bales during the week ended March 10.

Some commercials attributed at least part of the prior session’s selloff to expectations that “buy-backs” or cancellations could show up in Thursday’s weekly sales data, said Mike Stevens, independent cotton analyst at Mandeville, La.

There could be various reasons for “buy-backs,” he pointed out, adding that some mills might prefer the money to cheap cotton bought months ago.

Another theory, he said, is that some of the cancellations might represent cotton originally sent to China on consignment by merchants — and previously reported as sales — which now may be on the way back for delivery on the May contract to capture its big premium.

Commitments for 2010-11 already had reached about 99 percent of USDA’s forecast for the marketing year ending July 31 and remained around that mark at 15.128 million running bales. Net new-crop sales of 237,600 running bales lifted 2011-12 commitments to 4.290 million running bales.

Shipments of 326,200 running bales, smallest in eight weeks, boosted exports for the season to 8.333 million. This is about 54 percent of the USDA estimate. At the corresponding point last season, shipments totaled about 50 percent of final shipments.

To reach the USDA projection, shipments need to average roughly 348,800 running bales a week.

Meanwhile, China imported 184,200 metric tons of cotton (846,000 statistical 480-pound bales) last month, down 53 percent from January and down 17 percent from February 2010, the China Cotton Network reported.

China is the world’s largest cotton importer. Figures for February were influenced by the Lunar New Year holiday.

Some farmers in the Chinese provinces of Shandong and Hebei still are believed holding onto seed cotton, hoping to obtain higher prices later, Cotlook reported. Estimates indicated unsold cotton in Dezhou and some other areas may represent as much as 20 percent of the local output.

The China Cotton Index was quoted at the equivalent of 211.05 cents, down from 215 cents a week earlier.

The USDA projects China’s cotton imports at 15.5 million bales this season, up 42 percent from 2009-10. China’s share of 2010-11 global imports is estimated at 40 percent, up from 30 percent last season.

Bangladesh, currently the world’s second largest cotton importer, is estimated to increase imports marginally to about 3.9 million bales, while Indonesia and Pakistan are expected to import 1.9 million and 1.4 million bales, respectively, down 8 percent and 7 percent from 2009-10.

Imports are expected to decline by 29 percent to 3.1 million bales in Turkey and 1 percent to 1 million bales in South Korea.

World cotton exports at 38.6 million bales are estimated up 9 percent from the previous year and the second consecutive year of trade rebound. Increases in several major countries are expected to more than offset declines in other countries, resulting in one of the largest cotton trade volumes in recent years.

Exports are expected to expand 42 percent to 3 million bales for Australia, 36 percent to 2.7 million for Brazil and 27 percent to 15.75 million for the United States.

Looking ahead, China’s farmers plan to expand their fiber crop plantings this year by 5.4 percent from last year, wire services reported, quoting the Ministry of Agriculture’s nationwide surveys.

This would follow three years of decreases, reports said. Farmers in the northeast, the country’s largest soy area, plan to reduce soybean acreage by 11.2 percent. Grain acreage overall is expected to grow 0.3 percent, with corn up 2.1 percent and rice up 1.9 percent in the northeast provinces, the country’s Corn Belt.

The USDA will release its U.S. prospective plantings report on March 31. Anthony Tancredi, president of Allenberg Cotton Co. of Cordova, Tenn., the world’s largest cotton merchandising firm, has been quoted as estimating the U.S. cotton area could reach 13.3 million acres, up 21 percent from last year.

(Source: http://lubbockonline.com/agriculture/2011-03-20/howell-cotton-trims-steep-losses-fears-nuclear-crisis-may-slow-growth)