Cotton prices had an up and down day on Friday. Prices were quite a bit higher early on Friday, but the bearish forecasts in the USDA reports put downward pressure on prices. By the end of the day the December contract managed to hold on to a very small 16 point gain, settling at 64.10 cents per pound. Before the repots came out, the December contract was up more than 150 points. The March contract settled down 43 points at 61.84 cents. Early in the day the contract was up 70 points.
The USDA reports were generally bearish, due mostly to developments overseas. USDA raised production estimates for both India and China, but the increase in China was more than offset with a 1.5 million bale increase in consumption. But on the down side, USDA lowered China’s imports by 1 million bales to 7 million. That is still well above China’s recent claim to limit imports to close to 4 million bales. With the adjustments China’s ending stocks go down a little in 2014/15 – but by less than 1 percent. The size of the U.S. crop was lowered a little more than expected, but the developments in foreign markets overshadowed this improvement in the U.S. balance sheet.
Wet weather is expected to keep harvest progress pretty modest this week. If the wet weather continues next week we could see some improvement in cotton prices. The adjusted world price is below the loan rate giving farmers an option if they need some cash immediately. With the big gains on Monday, cotton prices managed to post good gains for the week with the December contract up more than 100 points.
USDA cut the 2014 U.S. cotton yield by 13 pounds per acre to 790 pounds. This reduced the size of the crop by 280,000 bales. There were no changes to the demand forecast, and ending stocks are now put at 4.9 million bales. The price range for this season was lowered and now goes from 55 cents to 65 cents per pound. Last month the range was from 58 cents to 70 cents per pound. The reduction in the size of the U.S. crop was a little supportive but the changes to the foreign supply and demand balance were negative and cotton prices have retreated following the release of the USDA reports.
Foreign production was increased by 1.64 million bales, adding to already burdensome stock levels. Production estimates were raised for both China and India, the two most important producers outside the U.S. The bigger crops outside the U.S. will push foreign ending cotton stocks up more than 1.1 million bales from the level forecast in September, and 3.35 million bales above year-ago levels.