China; Cotton Plantings for 2010/2011 Estimated Slightly Higher

Excellent article by my colleague and FCStone Fibers and Textiles' Chief Economist, Gary Raines

According to the latest planting intentions survey from China’s National Cotton Market Monitoring System (NCMMS), Chinese cotton farmers are likely to sow an additional 2.6% more land to cotton next spring than was planted this year. The NCMMS survey suggests acreage changes will vary substantially from one province to another, with some regions seeing double-digit declines, while others may increase at a double-digit rate. Plantings in North China, or the Yellow River area, are forecast at 31.6 million mu (5.2 million acres), down -3.0% from this past spring. The area around Shandong area is likely to increase 1.1%, while producers in the provinces of Henan, Hebei, Shanxi and Shaanxi reported anticipated declines of -5.6%, -6.3%, -11.4% and -19.9%, respectively.

Closer to the coast, cotton plantings in East China, or the Yangtze River Valley are projected to uniformly rise across each province in the region. At 21.7 million mu (3.6 million acres), total areas sown to cotton is projected to be up 6.5% from 2009. Acreage in Jiangsu, Hunan, Hubei, Anhui and Jiangxi is set to increase 11.7%, 9.5%, 7.3%, 1.5% and 3.1% respectively. Producers in these provinces cited a number of factors behind their pending switch away from cotton. In particular, farmers complained about 1) lower returns on cotton due to unfavorable weather impacting yield and a fast cotton delivery from growers to merchants before cotton rally; 2) lower returns compared to other crops, and 3) changing planting methods after a few years of crop losses, especially in Henan, that resulted in lower profitability.

The cotton area in the Northwest is forecast at 26.4 million mu (4.3 million mu), up 6.8% from this past spring. Xinjiang area will surge 7.1% and Gansu will see a modest increase of less than 0.1%. Producers said the increased planting intention in some provinces primarily is due to steadily higher seed cotton prices and a difficult season producing competitive crops.

Globecot Cotton Market Commentary for Week Ending 11/12

Globecot On The Market
11 December 2009 22:44 GMT

The US is becoming a bit more competitive; however, it is still not the growth of choice for buyers in the Far East. There was some light business done last night into Indonesia and Taiwan, but once again, nothing in volume. Despite the recent lack of sales though, merchants are becoming more and more bullish. One merchant stated this morning inquiry and chatter were increasing, and several merchants seem to believe that if there is a price dip, mills will come rushing to the table.

Funds maintain the bullish story line, but they are much less active. Whether it’s because they are waiting for price to move beyond its recent range, or they are taking money off the table prior to the year end, the CFTC shows hedge funds as adding only 518 contracts to their net long position now at 43,556. Index funds were sellers for the week ending December 8, decreasing their net long position by 1,516 contracts to 79,691.

After first walking into the door this morning, the market was stronger; but after retail sales were released, the dollar strengthened and cotton weakened. Retail sales were up 1.3% for the month of November, which was higher than the estimated 0.7%. When one discounts automobiles, gasoline and building materials, core retail sales rose by 0.6%. A further breakdown of the retail sales components shows a 0.7% decline in clothing and accessories. Overall though, the equity markets viewed retail sales as a positive number; and in a change from recent trading behavior, stocks rose as did the dollar. The Dow managed to close at 10,471, up about 65 points. The Dollar Index gained 0.54, to close at 76.585, or up about 0.71%.

Given the dollar’s strength, it was actually remarkable that cotton managed to post a close in the green, much less be up 59 points on the day. Volume continues to be very light with less than 9,000 contracts trading, and of those, 58% were related to spread activity.

After the ACSA announcement regarding the expected release of import quotas, the Chinese markets have been generally weaker. This morning, though, prices stabilized. The ZCE futures rallied, but ended up settling about 100 yuan/ton lower than the highs of the day. The most active contract, May, finished 40 yuan/ton higher at 15,805. Session volume for all contracts was 311,870 contracts. Open interest increased 15,428 contracts to 245,096. The CNCE forward market saw its most active contract, March, close 44 yuan/ton higher at 15,530. Session volume totaled 8,680 tons and open interest now stands at 91,600. Import prices fell .40-1.00 cents/lb. The reserve auction offered and sold 20,096 metric tons of cotton at an average T328 price of 15,068 yuan/ton. In this latest round of reserve auction, there have been a total of 299,065 metric tons. According to China Customs, cotton imports reached 112,900 metric tons in November, down 5,700 tons (5.1%) from October. In other news, China's industrial production grew by 19.2%, which was more than the estimated 18.2%.

We won’t rule out that a dip may occur, but sentiment is increasingly bullish from the trade and the speculators. With the holidays approaching, the cotton trade may well continue to have light volume and remain sideways until after the New Year.

Technical Commentary

It was in an inside day, so although the close was indeed higher, the trading action remains well entrenched in a consolidation pattern. We continue to find support at 73.06, 72.80, 71.73 (lower Bollinger Band), and 70.99. We continue to find resistance at 75.09, 75.74, and 75.85 (upper Bollinger Band).

By Candice Graham