Related Keywords: Agriculture
By Leslie Josephs and Alexandra Wexler Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Cotton prices tumbled to their lowest point in more than two years this week, as expectations of another year of ample global supplies of the fiber and concerns over demand weighed on the market.
Cotton for July delivery fell 5.6% this week, settling Friday at 73.62 cents a pound, up lightly since closing at 71.51 Wednesday, the lowest settlement since Feb. 8, 2010.
Earlier this month, the U.S. Department of Agriculture estimated ending global stockpiles of cotton--the amount left over at the end of the season--would rise to 73.75 million bales by July 31, 2013, the second consecutive season with a record surplus. It also forecast a 9% increase in cotton production in the U.S., the world's largest exporter of the fiber.
The futures have fallen 14% since the report was released.
Rainfall crucial to the planting season fell this month in West Texas, the largest U.S. growing region, just as farmers were putting cotton seed in the ground. It is a sharp turnaround from last year. The state produced its smallest crop in more than two decades last year after severe drought crippled production.
"This is a much more typical planting season," said Steve Verett, the executive vice president of the Plains Cotton Growers Inc., a trade group representing farmers in Texas' high plains.
According to the USDA, U.S. cotton plantings were 62% complete as of May 20, up 10 percentage points from the same point last year.
Federal forecasters expect a 10% reduction in U.S. cotton acreage this year, partly due to the dive prices have taken from the record settlement of $2.1515 a pound hit in March 2011, which makes other crops more attractive.
But this most recent decline occurred too late in the planting season for many farmers to switch to other crops, like corn or soybeans.
"If this happened a month ago you would have lost a lot of acres for other crops," said independent cotton analyst Mike Stevens. "It's past time for changing."
Despite the ample supplies, China, the world's top cotton consumer, isn't expected to pick up the slack.
China's economic-planning agency recently said the country would import less cotton going forward, a blow to the U.S. and India, which as the world's top two cotton exporters rely on China's appetite to support international prices.
Adding more fuel to the sell-off in cotton is risk aversion amid fears that Greece will leave the euro zone. These concerns helped send other agricultural commodities, including coffee and sugar, sharply lower this month.
Chris Kramedjian, a risk analyst at brokerage INTL FCStone said: "Whether you're a fundamental trader, a technical trader or making some kind of macroeconomic play, pretty much everything is pointing down for cotton right now."
-By Leslie Josephs, Dow Jones Newswires; 212-416-4055, email@example.com
(END) Dow Jones Newswires
May 25, 2012 15:42 ET (19:42 GMT)
Copyright (c) 2012 Dow Jones & Company, Inc.
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