In its monthly crop report, the US Department of Agriculture lowered its 2012/13 world cotton stocks forecasts for the first time since the marketing season started in August. While the report contained only minor changes to forecasts and the USDA still expects a record carryover, the headline numbers showing a slight improvement in demand and falling output were seen as a victory for the bulls.
The most-active March contract on ICE Futures US settled up 1.5 cents, or 2.04 percent, at 74.9 cents per lb, just shy of its intraday high of 74.99 cents. With almost 19,000 lots changing hands, volume in the March fibres contract alone was double recent daily averages for the whole market. Cotton was the second-best performer out of the 19 commodities tracked by the Thomson Reuters-Jefferies CRB index.
Frozen concentrated orange juice futures rose the most after the USDA slashed supply forecasts. In contrast, wheat lagged the whole complex after a weaker-than-expected outlook from the USDA. The cotton report was less dramatic, with the government cutting its ending stocks estimate by 600,000 480-lb bales, mainly due to a revision in Turkey's data going back eight years.
The new forecast of 79.64 million bales would still represent the largest supply since USDA records began in 1966 and would be a 15-percent rise from last season. In addition to technical adjustments for Turkey, the government raised its consumption forecast slightly citing higher import demand from the major textile hubs of China, India and Vietnam.
While less striking than other agricultural products, the news reassured investors that conditions appeared to have stabilised. The first four reports of the marketing seasons were increasingly downbeat. Some brokers questioned if the rally has the legs to last much longer. Higher prices will likely attract producer selling. "Today's move higher seems to have caused further separation between mill demand and merchant offering prices," said INTL FCStone analysts. "We still believe a demand-driven rally for physical bales is highly unlikely."
Furthermore little has changed as a result of the report. Analysts still expect demand to remain weak due to the sluggish global economy. Long-term consumption will also erode as clothing companies shift to using more man-made materials after the market was roiled by wild prices last year. Stocks jumped to 114,540 480-lb bales on Monday from 98,806, according to the latest exchange data.