What is in this article?:
- Record cotton stocks overwhelm market
- Much bigger than anticipated
• Futures prices are starting to reflect the surplus. December 2012 futures prices had dropped from 97 cents per pound in February to around 77 cents in early May.
• Given the surplus cotton supply, and weak demand, there is a good chance cotton will continue trading lower.
It’s hard for the cotton market to ignore nearly 74 million bales of supply.
That’s one reason why cotton analysts say cotton futures dropped precipitously in early May, despite China continuing to buy cotton to add to its reserves.
The 73.75 million bales in stocks was nearly 7 million bales higher than the previous year’s ending stocks, and is an all-time record high.
Futures prices are starting to reflect the surplus. December 2012 futures prices had dropped from 97 cents per pound in February to around 77 cents in early May.
“Given the surplus cotton supply, and weak demand, there is a good chance cotton will continue trading lower,” said Extension Professor Emeritus Carl Anderson, speaking at the Ag Market Network’s May conference call. “The price of cotton has already dropped a good $100 per bale since February, and we’re now starting to look around to see where we might bottom out and bring the market back to cotton.”
Anderson sees a potential low for December cotton futures at 70 cents, “but this morning, (May 11) after these shattering price moves in the last couple of days, I’m beginning to wonder if 70 cents will hold this market.
“I would expect December futures to hopefully trade in the 70-88 cent range for the next several months. But I’m beginning to wonder how strong the 70-cent floor is.”
Anderson says several factors play into the new price outlook. “The economic forces of supply and demand driven by an unrealistic run up of cotton prices above $2 a pound a year ago are now driving prices far below a dollar per pound. There is simply too much cotton worldwide, and too little demand. Manmade fiber prices much lower than cotton and weak demand for higher priced cotton has cut demand for cotton very deeply.
“As we look at the U.S. role in the world market, as well as the other major players, we’re loading up with cotton that is not finding a very strong market at current prices.”