Futures Market News
Cotton futures well below record prices
Nov 03, 2011 12:24 PM
Nearly nine months after notching record prices, the soft fiber is going soft.
Cotton futures were driving toward their lowest prices in seven days as well as a fourth consecutive day of losses on Thursday, according to published reports.
ForEx Pros reports the International Cotton Advisory Committee issued warnings that world demand for the soft fiber is waning. The ICAC also projects prices will continue dropping in price.
At 1:15 p.m. on Thursday, cotton futures climbed 0.52 percent, a 0.51 cent lift to 98.85 cents per pound.
Under those prices, the soft fiber is well below half the record price. On March 7, cotton futures topped out at $2.197 per pound.
Demand for the soft commodity during the 2011-2012 marketing season projects to amount to 24.6 million tons, roughly the same as the 24.7 million tons during the year prior. But consumption will not increase from the nations that compose almost 66 percent of world demand for the soft fiber - China, India and Pakistan.
"The projected slowdown in global economic growth in 2011 and 2012 will affect consumption of textile products, and therefore demand for cotton fiber," said the committee.
Despite weakening demand, production of cotton is projected to demonstrably increase in Pakistan, Australia and Turkey. But the U.S. is forecast to produce 12 percent less of the soft fiber because of the severe drought in the southwest region of the country. Texas, the top U.S. state to grow cotton, suffered from its worst drought in more than 100 years.
The trade association did increase its projections for the world surplus for 2011 to 2012. Production is forecast to rise from a surplus of 1.9 million tons to 2.3 million tons.
"This increase could translate into a significant decline in prices," according to the trade association.
As of late, even when the fiber has rises in value, it gets knocked down. On October 28, cotton marked its highest value in six weeks when touching prices of $1.0434 per pound.
The Business Recorder reports another reason the soft fiber is losing value is defensive positions staked out by cautious investors who are closely watching developments germane to the sovereign debt crisis.
Cotton was not immune to the fallout from Greek Prime Minister George Papandreou's suggestion to let the people decide if they want the nation's second tranche of international bailout aid in 17 months. Financial markets suffered the consequences as speculation grew regarding whether Greece defaulting would be another indication of the globe slipping into a double-dip recession.
"Cotton is going to share some of that pain," senior cotton analyst Sharon Johnson with Penson Futures in Atlanta told the publication.
The U.S. Agriculture Department is preparing to release a weekly report that itemizes weekly exports of commodities such as cotton. That release is scheduled for Thursday afternoon.
"I think some sales were done last week when the market went down to the 96 cents area and we expect the Chinese in there," one dealer said regarding China, the globe's top consumer of cotton.
The state-run cotton firm in China has signed a pact with the largest processor of the soft fiber in Australia, according to Reuters.
The marketing deal will see partners China National Cotton Group and Namoi market crops throughout the world from 2012 through 2017. The move will facilitate access for the globe's top buyer of cotton to the globe's top exporting nations.
The textile industry of China helps make the Asian nation the top importer of cotton as it accounts for 33 percent of the globe's traded goods.
"It makes sense for Namoi to form a joint venture with the Chinese company as China is one of Australia's biggest cotton customers," analyst Belinda Moore with RBS Morgans in Australia told Reuters.
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