With the market feeling secure with the U.S. and world production numbers; it is left for the consumption side of the price equation to defend the honor of a price rally back to 55 cents, or any attempt to move higher. Yet, again we look to exports. Export sales commitments are only 46 percent of the same time year ago level. Export sales are 2.8 million bales while the year ago level was 6.1 million bales. Export sales of upland cotton for the week ending September 21, 2006 were only 189, 800 bales, much less than what was expected for a week associated with a 52 cent price.
The primary distinction between this season and last is the fact that China has not been a big buyer. Chinese buying, while very consistent, has lacked the aggressiveness of last season's purchases.
Yet, the Chinese harvest is just under way and local cotton will begin arriving at the mills in another month. It is still expected that China will buy in volume from the U.S., but not until after their harvest.
Domestic consumption by U.S. textile mills continues as forecast-disappointing. Annualized domestic consumption for August was 5.2 million bales and the revised July annualized consumption was lowered to 5.4 million bales. The U.S. has now lost half of its annualized consumption since 2000.
Thus, with the demand side of the price equation failing to offer any excitement, the cotton market must march in step-going nowhere-except slightly lower until export sales surface.
Until then, the market will continue to work down toward 48 cents. Cotton prices may be forced to wait until early January to any successful attempt for a rally.
O.A. Cleveland's Newsletter
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