By Julie Wernau
Cotton prices fell Monday as the market eyed weak demand from
China coupled with the potential for a large U.S. cotton crop.
Cotton for December, the most actively traded contract, shed
0.7% to end at 66.95 cents a pound on the ICE Futures U.S.
exchange.
While a recent U.S. Department of Agriculture survey of cotton
plantings came in lower than analysts anticipated, the agency
intends to conduct a rare resurvey of some of the nation's largest
growing regions, including Texas, as record rains this year had
some farmers waiting until after the survey was conducted to decide
whether to plant cotton. Those results are set to be released in
August.
However, the wet weather has also been conducive to growing
cotton this year. As of July 5, 57% of the cotton seedlings were in
good or excellent condition.
The USDA has been assuming a yield of 809 pounds per harvested
acre, lower than the previous two seasons. Analysts are looking to
Friday's world agricultural supply-and-demand report to show the
U.S. production estimate has been revised upward given this year's
helpful weather for cotton-moist soil followed by hot, dry growing
conditions.
"The obstacle now for a big crop is enough heat," said Terry
Roggensak, founding principal of the Hightower Report in Chicago.
"The six- to 10-day forecast is a little dry with above-normal
temperature. That's a perfect set up for West Texas." Texas is the
biggest cotton-growing state, with nearly 60% of U.S. cotton
acres.
At the same time, China, the world's largest cotton importer,
confirmed last week that it plans to release 1 million tons of
cotton from its stockpiles over the next two months.
Despite the news, money managers remain bullish on cotton,
increasing their net long position Tuesday to 48,719 contracts, the
highest since May 5.
"We have a tug-of-war between bullish specs and a bearish
trade," Plexus Cotton Ltd. in Liverpool, the U.K., said in a note.
"What makes the market dangerous at the moment is that the
speculators have the ability to throw large sums of money at the
market, while the (commercial) trade doesn't really have the means
to stop them."
With little cotton left from this year's crop and the new crop
just planted, commercial traders will have to wait until December
delivery approaches before they can stockpile enough certified
cotton to pose much of a threat to the bulls, said Peter Egli,
director of risk management for Plexus.
Commercial traders have been buying Brazilian and Indian cotton
at low prices and selling futures against it with bearish put
options while speculators are buying, Mr. Egli said.
In other markets, raw-sugar futures hit a one-month high after
the International Sugar Organization released its first projection
for next year's world sugar balance. The ISO expects demand to
exceed production by a 2.5 million metric tons in the year
beginning Oct. 1. The ISO is set to release its first full report
on next year's sugar market in mid-August.
The most actively traded raw-sugar contract, for October, rose
1.5% to 12.43 cents a pound, the highest since May 21.
The debt crisis in Greece weighed on expectations for European
demand for coffee and cocoa. Arabica coffee for September ended
down 1.8% at $1.2515 a pound, the lowest close since May 28, and
cocoa for September fell 0.3% to $3,278 a ton.
Frozen concentrated orange juice futures for September jumped
3.4% to $1.2215 a pound, posting their biggest daily gain since
June 8.
Write to Julie Wernau at julie.wernau@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires