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Cotton prices trade higher after yesterday’s fall.

John Flanagan
In Grain Futures | Market Analysis | Softs Futures
by John Flanagan at 10:05 am on March 21, 2012 - [edit]

Cotton prices pulled back on Tuesday but are trading 110 points higher this morning. New crop cotton (December cotton futures) have been in a wide ranging downtrend since last summer. The most recent high was 97 cents, seen at the beginning of February. Since then, December cotton has fallen 9 cents. Cotton competes for planted acres with corn and soybeans and is losing the battle for acres to soybeans. The National Cotton Council polled its members for their planting intentions back in January. Their survey indicated that growers intended to plant 13.6 million acres of cotton. Since then, December cotton prices have remained unchanged while November soybean prices have gained 6%. This should indicate that some of the acres intended for cotton will migrate to soybeans. Normally this would be friendly to cotton prices because it suggests there will be a smaller supply of cotton available in the US after harvest. But this year the weather is not likely to be as severe as last year when one out of three cotton acres was abandoned as unworthy of harvest, and that means we’ll probably see a bigger harvest this year than last, even with fewer acres planted. Meanwhile, world demand for cotton is improving at a slow pace and world ending stocks of cotton, the amount of cotton grown but not used, are building to record levels. This suggests that cotton prices will face downward pressure throughout the growing season and are likely to trade nearly twenty cents lower than current prices at harvest time. But China is likely to support US cotton prices between now and late May when cotton is planted in the US. They want the US to continue growing cotton for export to them. But once the acres are planted, China is likely to back away from buying US cotton and allow cotton prices to fall. There is always the possibility that short term events can cause December cotton prices to rally, but any rally into the 90 cent area should be sold in our opinion.

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