Tag Archives: Outlook

Cotton Outlook – 2011.02

by on February 16, 2011

The cotton market remains in a steep uptrend. An extremely tight US stocks outlook and ideas that global demand will remain strong are the foundation of the recent rally to new all-time highs. While traders continue to see evidence that new crop supply will rise and will reach and likely exceed anticipated demand for the 2011/12 season, they remain concerned about the La Nina weather pattern and the dry conditions in Texas and China. There has also been a lack of evidence so far that old crop demand is slowing.

As China traders returned from the New Year holiday, China cotton futures soared to new contract highs. This, along with continued strong weekly export sales from the US, sparked another new all-time high for March cotton to 194.55. March 2011 CottonThere is more and more talk that the market will make a run at 200. The market’s 18% gain over in only 5 trading sessions has left the market extremely overbought.

The weekly export sales report as of February 3rd showed continued strong demand, with 111,100 running bales sold for the current marketing year and 193,700 for the next marketing year for a total of 304,800 bales. This was once again above trade expectations. Only 25,000 bales of old crop sales are needed each week to reach the current USDA forecast. Cumulative US cotton sales stood at 95.6% of the USDA forecast for 2010/11 (current) marketing year, well ahead of the 5 year average of 66.8%.

US Cotton Ending Stocks Day's of SupplyAt just 1.9 million bales, US ending stocks for 2010/11 are projected to be their lowest on record going back to at least 1960. (Last year’s ending stocks totaled 2.95 million bales, and the previous year’s was 6.34 million.) This will result in a stocks/usage ratio of just 9.8%, down from with 19% last year, 37.6% two years ago and 55.2% three years ago. World cotton has been trading at a 20 to 25-cents premium to US cotton in recent weeks. As long as world values stay above US values, exports should remain strong. If that happens, the USDA will eventually be forced to increase its export forecast and lower its ending stocks forecast even further.

US Cotton Ending Stocks vs Stocks/UsageIn the February USDA supply/demand update, world ending stocks were revised fractionally lower to 42.81 million bales, and world demand was left close to unchanged from last month at 116.55 million bales. This was down from 118.52 million last year. World ending stocks were projected to be the lowest since 1995. China’s demand was much stronger than expected coming out of the recession, and planted area in the US and other key world producers shrank. Flooding in Pakistan and a decline in Chinese production left the market short on supply. India’s cotton industry officials believe that their nation’s actual crop production may come in below current official estimates and that the export cap at 5.5 million bales will remain in place.

ICE certified deliverable exchange stocks increased to 168,894 bales over the past few months after falling to around zero in late 2010. This leaves some wiggle room for deliveries in March, but merchants are holding tight.

Looking ahead, traders see US plantings up at least 14-18% this season. The National Cotton Council basically confirmed the lower end of that estimate when it released the results of its annual planting survey indicating that US producers will plant 12.5 million acres this season. This would be a five year high. The China Cotton Association has pegged their 2011 plantings to increase 9.8% from last year. In Mato Grosso Brazil, their largest soybean producing state, cotton plantings this year are pegged at 671,100 hectares, up 60% from last year. Brazilian officials raised their cotton production forecast to 1.95 million tonnes, up from 1.84 million last month and 1.19 million tonnes last year. Australian officials estimated that 7% of their 2010/11 plantings were destroyed by the recent storms.

The International Cotton Advisory Committee believes world production will increase to 126 million bales for the 2011/12 season, up from 115 million in 2010/11. Consumption is expected to jump to 117 million bales from 114 million this year.

Cotton COT Futures and Options CIT Net PositionThe Commitments of Traders reports as of February 1st showed non-commercial traders were net long 59,233 contracts, an increase of 5,182 for the week. While this was at the upper end of the historic range and suggested an overbought condition, it was still well short of the record high of 99,866 contracts from February of 2008. Commodity index traders held a net long position of just 43,402 contracts, up 567 for the week, but the previous week was the lowest on record. (The available data goes back to January 2006.)

The cotton market seems to be in a position where any signs of a weaker global economy, especially in China or normal weather in the early growing season would help forge a major top for both old and new crop cotton contracts.

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2011 Commodity Outlook

by on February 2, 2011

Below is an excerpt from The Hightower Report’s most recent Special Report. To receive access the full story, with trade strategies, along with our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!

While many economists and talking heads have allowed stubbornly high unemployment rates in developed countries to darken their assessment of the world economy, a lot of progress has been made in putting the sub-prime crisis in the rear-view mirror, and a certain amount of forward momentum is being seen. Certainly, periodic flare-ups of European sovereign debt problems have complicated the global recovery process, but it appears that the ECB and the US can be counted on to make the right decisions, especially after both entities have used up quite a number of the possible wrong solutions. One can’t fault Euro-zone and UK leaders for their decisions to move quickly with aggressive government austerity programs, as the marketplace (primarily Germany) was demanding that type of response. However, overly aggressive government spending cuts isn’t the short path to growth, and for many EU members the market wasn’t inclined to allow them free rein. In a surprise twist of fate, the US was never really held to the same debt and stimulus limits as many other countries, and as a result the Dollar showed some recovery potential toward the end of 2010.

G8 Unemployment ComparisonEven though we think that the US economy will continue to see its dominance slip, we expect it to remain an integral part of the global economy. And because the US has so far avoided “tangible” deficit reduction efforts and it in turn has continued to be aggressive with its easing efforts, we have a fairly upbeat and positive economic view toward 2011. Even more encouraging is the potential for the US to shift from the socialist/anti-capitalistic leanings that were embraced by the Democratic President and the Democratically-controlled Congress. In fact, even with the lame-duck Democrat House, the US saw efforts to extend the Bush era tax cuts for all incomes.

The US economy seemed to remain on a positive footing into the New Year, but perhaps the pace hasn’t been living up to market expectations. With disappointing December Non-Farm Payrolls and US Initial Claims numbers released in January, a bit of macroeconomic concern has resurfaced. For the time being, the dominance of the US over the Euro zone has been tamped down, as auctions of Euro zone debt went off without a hitch and strong numbers from Germany seemed to close the gap with the US.

China CPI Annual Percent ChangeIn addition to news that S&P and Moody’s might be poised to reduce the US credit rating, the markets have also been a bit concerned that several US states might be poised for trouble directly ahead. Illinois ignored the calls to reign in spending by passing a last minute, lame-duck tax increase, and the international markets took that as a sign that the US hasn’t recognized the seriousness of their debt crisis yet. Therefore, the Dollar seems to be poised to lose some of its strength versus most other currencies. This helped drive the dollar index to the lowest level since November 22nd, and while this might help boost demand for commodity markets, traders remain fearful that the “shift” from the aggressive government spending era and monetary stimulus period of 2008 to 2010 might end with a dramatic shift toward sharp cuts in government spending and sharply reduced spending from state and municipal governments. This may be a drag on economic conditions.

Weekly Nearby Continuous Commodity IndexThe markets also seem to have found Chinese economic activity to be much more stable than initially perceived, even though China has taken a very aggressive stance in battling domestic inflation. China is expected to see 18 million cars sold domestically in 2010, while the US is only expected to see 12.4 million, which suggests to us that China is quickly becoming the dog that wags the tail in the physical commodity markets. Those seeking accurate signals on the direction of the world economy (as well as commodity pricing) need to shift their thinking from fearing that China will trip up its economic growth by battling inflation to realizing that their growth is well entrenched and that they have no interest in derailing their prosperity.

While global economic growth for 2011 may not be stellar, it could be comparable or slightly better than 2010. Even modest growth is expected to leave most physical commodity prices in a position to see distinct and perhaps aggressive upward moves. Many could post new “all time” highs!

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Are Things Turning Around?

by on May 1, 2009

In retrospect, the months of March and April appear to have been a turning point. While the bears will discount the six straight weeks of equity market gains, the “green shoots of recovery” dialogue and the slowing of the rate of deterioration in the numbers, we think that the biggest indicator of the potential for recovery is the market’s ability to initially stand up to the threat presented by the influenza A outbreak. While the influenza A situation was still up for grabs as of this writing, we got the sense that the market would prefer to embrace the positives instead of the negatives, and that more than anything suggests the world is working its way past its problems. In addition to the influenza A pressure on April 27th and 28th, the markets were also presented with renewed capitalization threats at two major US financial firms, and even that failed to rekindle a full blown anxiety event. However, even if the influenza A threat is easily discounted, that event has probably added to the burdens facing the economy, especially since the US 1st Quarter GDP reading came in down a surprising 6.1% last week!

On the positive side, both consumer and investment sentiment have seemingly improved, and there continue to be signs that the housing sector is getting into a position to recover. In looking at a chart of the unsold supply of homes, it is clear that the US market is starting to correct its oversupplied condition, and that could be a very critical development. Former Fed Chairman Greenspan has consistently maintained that the supply of unsold homes could be the single most important indicator on the economy, because the housing/sub-prime crisis is considered to be the primary cause of the crisis. However, one probably has to expect further bad news from the US employment situation, as the “green shoots of recovery” really didn’t serve to lift sentiment until the later stages of March. With the influenza A threat complicating things, one might expect to see discouraging US Non-Farm Payroll readings through at least the first week of June. In the meantime, a sideways to higher trade in equities would seem to favor the bull camp after the rather impressive run up in the March and early April time frame.

While copper prices showed a definitive pattern of weakness in the second half of April (after peaking out at the highest levels since last October), a clear pattern of declining LME copper stocks would seem to suggest that global industrial activity is holding together. On the other hand, US crude oil and gasoline stocks have not shown any indication of tightening yet, so there really isn’t any physical evidence of an improvement in the “real” economy.

All things considered, it would appear that an improvement in sentiment or attitude is necessary before a real repair of the economy can be expected. Therefore, we would suggest that traders continue to use the action in the stock market as their primary guide. In the event that equities avoid significant downside action or manage to extend the March/April rally, it could provide markets like cattle, corn, copper and the platinum group metals with some upside potential.

A Bullish Outlook For Sugar

by on May 1, 2009

Below is an excerpt from our most recent Newsletter. To receive access to this story, with trade strategies, and our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!

The sugar market has been in a steady and persistent bull trend since the washout low into October. The uptrend channel has been impressive given the outlook for a large Brazil cane crop this year and crude oil’s choppy trade in the $40.00-$55.00 range since late last year. A recovery in the world economy and the possibility that ethanol export demand from Brazil will see a gradual uptrend in the years just ahead leave sugar as a longer-term “buy and hold” commodity. The possibility of a sharply lower dollar and the likelihood that there will be inflationary pressures on commodity markets due to aggressive monetary stimulus in 2008 are additional reasons to consider buying sugar. Traders see a significant world production deficit this year and another one for next year.

It appears that India needs to import quite actively, and the market already knows that Brazil should see a large cane crop this season. India has already contracted 1.3 million tonnes of raw sugar this season, of which 900,000 have already arrived. The head of the India Sugar Mills Association indicated last week that they would import close to 3 million tonnes of raw sugar this season and that more imports would be necessary for the 2009/10 season. India production is expected near 14.8 million tonnes, which is slightly higher than previous estimates of 14.5 million but down sharply from 26.5 million last year. Market sentiment has turned bullish, with the demand outlook boosted after the Indian government removed import duties. The India government does not believe sugar production will fall below 15 million tonnes, while industry representatives believe production will be near 14.2 million. The USDA attach‚ believes India will need to import more sugar (2.5 million) in the 2009/10 season, and traders see imports near 3 million tonnes this season.

Fundamental factors that could limit the upside include a slowdown in demand from Indonesia and Russia this year and prospects for a large cane harvest in Brazil’s center-south region. Traders see a Brazilian cane crop that could be up 8-10% from last year if the weather is favorable. With deliveries against the May contract out of the way, the market may be in a position to see a resumption of the uptrend. The Commitment of Traders report for the week ending April 21st showed a mostly overbought condition in sugar with speculators holding a hefty net long position of 140,661 contracts. Trend following funds reduced their net long position by 2,212 contracts to 62,735 contracts. The selling trend is slightly negative. On the other hand, index funds increased their net long by 1,272 contracts for the week. Open interest for the month of May was down about 45,000 contracts. The uptrend could begin to attract new buyers ahead, while sellers seem to be already positioned.