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Cotton Futures Enter Bear Market on Outlook for Global Supply

June 25, 2014
5 16 12 Texas cotton
  
 
 

Cotton entered a bear market as improved prospects for crops in the U.S., the world’s biggest exporter, compounds the outlook for abundant world supplies.

Ample rains in the past two months have eased drought conditions in Texas, the leading U.S. grower, said Drew Lerner, the president of World Weather Inc. in Overland Park, Kansas. In season that starts Aug. 1, domestic output may rise 16 percent from a year earlier amid increased plantings, the U.S. Department of Agriculture projects.

Futures have slumped 11 percent this year. The bigger American crop will add to stockpiles in China, pushing global inventories to the highest ever, USDA data show. The glut increases chances for lower costs for companies including Hanesbrands Inc. and jeans maker Levi Strauss & Co.

"We’re going to have a very good crop, and that’s a problem," Mike Seery, the president of Seery Futures in Plainfield, Illinois, said in telephone interview. "The market doesn’t have any good fundamentals, there’s just going to be a lot of supply."

Cotton for December delivery lost 1.6 percent to settle at 75.26 cents a pound on ICE Futures U.S. That marked a 21 percent drop from this year’s settlement high of 94.75 cents on May 5, meeting the common definition of a bear market.

The U.S. economy contracted 2.9 percent in the first quarter, more than forecast and the worst reading in five years, the government said today. Domestic farmers may collect 15 million bales in 2014, up from 12.91 million last year, the USDA said June 11. A bale weighs 480 pounds, or 218 kilograms.

"To have the economy shrink like that indicates that things are slowing down," Sid Love, the president of Sid Love Consulting Services in Overland Park, Kansas, said in a telephone interview. "People don’t eat cotton. It isn’t necessary for consumers to buy clothes or a new pair of jeans. This will have an impact on demand."

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RELATED TOPICS: Cotton, Marketing, Crops

 
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