There was very little news to guide cotton trading yesterday and thus very little price movement after Monday’s lurch higher. But today we saw old crop prices lurch higher again while new crop futures remain subdued.
Again there was no particular news to explain it and the wire services report fairly aggressive fund buying was the feature today, as it was on Monday. Today’s buying is reportedly fund managers betting tomorrow’s export sales numbers for the week will be strong. Further, traders are said to be putting much more store in forecasts for Chinese cotton producers to cut acreage about 9% in 2014 than they are a recent trade conference survey suggesting U.S. cotton growers might BOOST acreage by 8% this spring.
Indeed, noted cotton guru O.A. Cleveland said in a recent report that he’d expect any boost in U.S. cotton acreage to be no greater than 5%.
And then it’s worth repeating this nugget of a bullish bias among speculators stemming from the Monday news where purchases for government reserves have dropped to 2-month lows. How could that have been price-friendly? If it indicates there’s little cotton left from this year’s crop that will meet government quality standards. If so, that raises speculation that Beijing will again loosen up import quotas.
That idea gained further credence this morning with a Bloomberg feature on rumored plans by Beijing to reduce their official definition of “self sufficiency” in domestic food and fiber production to 80% of annual consumption instead of 95%. This would allow officials to expand import quotas without violating official policy of being “self sufficient”.
What I find still ominous, however, is that among die-hard fundamentalists like myself, who think it unwise to simply “not count” China’s 60% share of projected world stocks, the upside potential for cotton from here is probably 2-3 cents while the downside risk, if U.S. acreage rises while China bows out of the import market to use up excess stocks, is 7-10 times the upside!