USDA Report: Cotton Stocks Tighten As Expected

NEW YORK, Mar 10, 2010 (Dow Jones Commodities News via Comtex) -- (Adds background, analysts' market outlooks.)By Holly Henschen of DOW JONES NEWSWIRESThe U.S. Department of Agriculture modestly adjusted forecasts for 2009-10 U.S. and world cotton consumption Wednesday, resulting in a supply and demand situation analysts said had been anticipated by the market.

"A lot of the changes in the U.S. and world are fairly small and may have already been factored into the market," said Gary Raines, fibers and textiles analyst at FCStone in Nashville, Tenn.

Cotton prices on ICE Futures U.S. were modestly higher ahead of the report but turned lower before quickly recovering losses. As of 9:52 a.m. EST, May cotton futures were back down 2 points at 80.33 cents a pound.

Higher cotton consumption from November through January prompted the USDA to raise its projection for U.S. 2009-10 domestic cotton consumption to 3.5 million bales from the 3.4 million bales forecast in February.

Analysts had anticipated the increase after several months of data showing domestic consumption was on the rise. U.S. textile mills used cotton at a seasonally adjusted rate of 3.660 million 480-pound bales in January, up from 3.538 million bales in December, the National Cotton Council said Feb. 25.

The USDA left its outlook for 2009-10 U.S. cotton production unchanged at 12.40 million bales.The USDA also left its estimate for 2009-10 U.S. cotton exports unchanged at 12 million bales.

As an effect of other changes, the USDA lowered its estimate for 2009-10 domestic cotton ending stocks to 3.2 million bales from the 3.3 million bales forecasts in the last report.

"Tighter [U.S.] ending stocks and higher consumption points to a smaller stocks-to-use ratio, which is supportive of prices," Raines said.

The USDA also adjusted world data to reflect higher consumption and lower ending stocks. The USDA trimmed outlook for world cotton production by just over 1% to 102.24 million bales from the 102.74 million bales forecast last
month.

The change came as the USDA decreased its projection for China's 2009-10 cotton production to 31.50 million bales from 32 million bales estimated in February.Analysts expected the USDA to reduce China's crop. In late February,
China's National Bureau of Statistics estimated the country's 2009-10 cotton production down 15% on the year at 6.4 million tons.China is the world's top cotton producer, importer and textiles manufacturer, as well as the top destination for U.S. cotton exports.The USDA also raised its outlook for China's 2009-10 cotton imports to 9.50 million bales from the 9 million bales anticipated in the last report.The USDA slightly increased its outlook for 2009-10 world cotton
consumption to 115.70 million bales from 115.53 million bales projected in February.Aside from higher outlooks for U.S. cotton use, Turkey and Vietnam are also expected to add to cotton consumption in 2009-10, the USDA said.

The USDA lowered its outlook for global cotton ending stocks to 51.41 million bales from the 52.08 million bales projected last month.

Analysts said cotton futures have found little direction from the report. Cotton prices, which rallied 22% from Feb. 5 through March 1, have stalled out and are creeping lower. May cotton slid 4.7% from the March 1 high of 84.60 cents through Tuesday's close at 80.33 cents a pound. Cotton rallied on expectations for strong demand following strong U.S. cotton export sales and talk of an economic recovery."Traders that were hoping the report would furnish a reason for the market to break out of its consolidation one way or another were obviously disappointed," said Mike Stevens, an independent cotton broker and analyst in Mandeville, La.Raines said traders' attention will now turn to planting for the coming season.

The USDA said in a preliminary report that U.S. producers are likely to plant 10.5 million acres of cotton in 2010 as recent high prices make the fiber attractive compared to alternative crops like soy and corn. The USDA is scheduled to release its 2010 spring plantings report March 31.

Nonetheless, indecision remains a them in the market, said Sharon Johnson, senior cotton analyst at First Capitol Group in Atlanta."The second half of March should be more sideways [trade] with erratic, volatile behavior as traders are less certain and mixed in their opinions," Johnson said.

-By Holly Henschen, Dow Jones Newswires; 212-416-2138; holly.henschen@dowjones.com
(END) Dow Jones Newswires

Source: http://news.tradingcharts.com/futures/9/5/136507759.html