So far, the month of April has not been kind to the cotton market.
On Wednesday of last week, Dec12 futures closed at 87.11 cents per pound — the lowest level since last December and testing support at 88 cents.
Prices ended the week back over 88 cents at 88.68 — up 1.14 cents for the week.
We’ve come a long way down since prices were at the $1 level and there’s no doubt prices have made a significant slide. But so far, despite increasingly bearish factors, prices have avoided a complete meltdown (to the 80 to 85-cent level).
For the third consecutive month, USDA supply/demand numbers have again not been kind.
I don’t know how much more the market can stand — but there are several reasons why cotton may be able to hang tough.
The April USDA supply/demand report revised India stocks up 3.25 million bales. This, in conjunction with other changes, push 2011 crop year ending stocks to a whopping 66.07 million bales — up 3.75 million bales from the March estimate. Also, world use (demand) was dropped 1 million bales from the March estimate.
About the only good news was U.S. exports were raised 400,000 bales and China imports raised two million bales. Offsetting this, however, Chinese use was lowered one million bales so alltogether this raised Chinese ending stocks by three million bales.
The two most significant bearish price factors at present are large world stocks and weak demand. Prices have declined and remain under pressure for these reasons.
There is still a possibility that prices can rally as we look forward. The weakening of prices into the 80s may result in less cotton being planted than indicated by the March Prospective Plantings report.
Also, drought conditions are already indicated in the Southeast (especially Georgia) and Texas. With reduced plantings already expected, lower acreage and highly suspect growing conditions, should provide a measure of support to the market.
With very large stocks and weak demand, however, how far is price willing to go before this “support” kicks in? That’s the big question.
Large stocks and weak demand signal the market wants and needs less cotton in 2012. I suspect the majority of acreage decisions are set, but prices over the next month could still shift some acres around.
Prices should find support around 84 to 85 cents if the current 88-cent level fails to hold. Under poor U.S. growing conditions or other bullish price factors, prices back in the 90s are not out of the question.
(The cotton industry was thrown a curve ball with the USDA's revised world cotton stocks numbers earlier this month. For an in-depth look at that situation, see http://southeastfarmpress.com/markets/historical-revisions-world-cotton-stocks-jolt-market. 
Government policies in China and India are also having an impact on the U.S. cotton market. For that information, see http://southeastfarmpress.com/markets/china-india-pulling-strings-us-cotton-market ).