Weakness in cotton futures, which suffered a setback on soft US export data, may not last, veteran analyst Judith Ganes-Chase said, warning that weak prices could prompt a further drop in US sowings.
Unless China gives a “clear signal” that it is to unload some of its huge inventories, equivalent to more than 60% of the world total, “I don’t see a justification for cotton prices to sink much more than they have”, Ms Ganes-Chase said.
She acknowledged cause for somewhat “stilted” bullishness in the fibre, with low energy prices boosting the competitiveness of synthetic alternatives.
“Low energy prices make it an even more competitive environment with manmade fibres gaining a clear edge.
“It is already clear that cotton is no longer king and other fibres are increasing market share.”
Furthermore, consumers were putting a lower proportion of their cash towards clothing.
“Purchasing habits have changed and consumers are doing with fewer garments and allocating a greater amount of their spending dollars on electronics.”
However, with cotton futures at levels which are among the lower levels in six years, the “bearish news [is] already factored into the market”.
The prospect of world economic revival was one factor supporting cotton prices, and the help to demand from weak prices which.
Seasonal price trends were upbeat too, with Ms Ganes-Chase saying that the cotton market “generally hits bottom as the harvest pressure ends and then rises into year end and early in the year”.
Indeed, without an imminent rally, farmers might cut sowings further from levels which, in the US, came in at 8.56m acres this year, a 32-year low.
‘Plantings could fall yet again’
“The issue will be not what is the best crop to plant but which is the most tolerable given the depressed state of commodities,” said Ms Ganes-Chase, at J Ganes Consulting.
“Cotton tends not to be the winner in this race and plantings could certainly fall yet again if prices stay depressed.
“The lower the market is driven at this time of year the more likely that farmers will turn a blind eye towards planting cotton and opt for other more lucrative cash crops.
“Foreign producers will be making the same decisions as US farmers and also lack reason for considering planting cotton seed.”
The comments came amid a somewhat topsy turvy week for cotton futures, which were boosted on Wednesday by a cut by the US Department of Agriculture to its forecast for world stocks at the close of 2015-16, only to fall on Thursday by 1.6% to 63.77 cents a pound for the spot March contract.
The retreat followed data showing US sales of upland cotton slumped last week by 73% to 78,700 running bales for 2015-16, far offsetting a rise to 6,800 running bales in sales of pima cotton.
While actual shipments of US cotton last week, at 115,300 running bales, were higher, they too were “well below” the pace needed to meet target of 10m bales that the USDA expects for the whole of 2015-16, said Louis Rose at the Rose Report.
Indeed, both the export sales and shipment data were “dismal”, he said, estimating at 133,000 running bales a week the pace needed to meet the USDA’s full-season forecast.
(Source – http://www.agrimoney.com/news/us-cotton-area-may-dip-beneath-32-year-low-unless-prices-revive–9106.html)