December 18, 2014 COTTON MARKET REPORT Dec17 Dec10 change ICE Mar15 60.65 59.57 1.08 ICE May15 61.16 60.18 0.98 ICE Jul15 61.87 60.92 0.95 ICE Dec15 64.43 63.65 0.78 ICE Mar-May15 -0.51 -0.61 0.10 ICE May15-Jul15 -0.71 -0.74 0.03 ICE futures open interest 173'902 173'720 182 ICE certified stocks 56'044 45'709 10'335 68.35 67.85 0.50 ICE Cotton Futures Mar15, Daily 64 63 62 61 60 12'915 -55 89.133 88.271 0.86 58 Dec 14 12'860 USD Index Nov 14 ZCE May15 Oct 14 59 A-Index 14/15 (previo us day) ICE Cotton Futures – This has been a turbulent week for many markets. Crude oil prices set new lows before being able to erase some of their recent losses. Equity markets acted quite nervously and the Russian Ruble saw a mindboggling range expansion and depreciation. Less spectacular, but still noteworthy, was the weakness of the Indian Rupee which moved to its lowest level vs. the US$ in over one year. In contrast, the cotton market has remained pretty much unimpressed by all of the surrounding noise. Cotton futures did try to break above range resistance. The effort turned out to be a failure which triggered selling pressure from disappointed short-term longs, but yesterday prices managed to recover with a late session rally. Overall, no real change has occurred as prices have remained within a 300 point sideways range which is in place since midNovember. Eventually, a break will occur, either way. However, it still proves difficult to find good enough reasons why prices should move in a substantial and long-lasting fashion away from current boundaries. Nevertheless, the possibility of a range expansion to about 64.50, respectively 56.50, should not be completely ruled out, even in the short-term. Bloomberg Commodity Index ZCE Cotton Futures May15, Daily 14200 140 14000 135 13800 130 13600 125 13400 120 13200 13000 115 12800 110 12600 105 Dec 14 Oct 14 Nov-14 Oct-14 Sep-14 Aug-14 Jul-14 Jun-14 May-14 Apr-14 Mar-14 Feb-14 Jan-14 Dec-13 Dec-14 1 Nov 14 12400 100 12200 www.reinhart.com December 18, 2014 COTTON MARKET REPORT USA – This week we take a more in-depth look at the December U.S. crop report. Looking specifically at the High Plains of West Texas which is one of the single largest cotton producing areas in the world, the National Agricultural Statistics Service returned to a downward trend on their prediction for the 2014 High Plains cotton crop. This is after inching High Plains production estimates upward in their November report. USDA estimates that High Plains growers will produce 3.416 million bales of cotton in 2014, down 329’000 from their November number of 3.745 million. Most of the reduction can be attributed to decreased outturns in the non-irrigated producing areas. Classing has surpassed the halfway mark. For the season cotton classing in the area is approaching 2.0 million bales. Approximately 75% of bales classed this season have been color grade 21 or 11, and average length for the season is 35.63, which is about on par with recent historical trends. Average micronaire for the season is about 4.0 which is surprisingly better than recent years. Producer selling continues at a good pace in spite of the generally weak futures market. By most accounts, growers to merchant business on a daily basis surpasses 30’000 bales. India – Total all India arrivals for current crop reported around 9.11 million bales (170 Kgs) till 16 th of December of which Cotton Corporation of India has procured around 2.45 million bales under minimum support price program. The Gujarat government announced INR 11 billion relief package which will be allocated to farmers, to assist them with costs such as outstanding loans and electricity bills. Scattered unseasonal rains were reported in Maharashtra and Northern India, due to which arrival were slow in above regions. Lint prices for new crop Shankar-6 good quality reported around INR 33’250 per candy ex-gin equivalent to US Cents 68.20 per lb FOB based on prevailing exchange rate. USD/INR currency pair hit a 13-month high at 63.59, heavy dollar demand amid panic sell-off in equities and debt, as FIIs reduced their exposure to Indian equities markets. India’s trade deficit widens to 18-month high of USD 16.86 billion, in November as Gold imports surges by six times to USD 5.60 billion. Overall exports grow by a mere 7.30% as compared to a 26.80% jump in total imports. China – At the beginning of the reporting week the May15 contract made a new attempt to reach the nearest key resistance at 13’400 following the rally on ICE, but once again it was unable to hold the gains and fell back to below 13’000 to close virtually unchanged. Breaking and closing below 12’640 sets the life of contract low at 12’320 as minimum downside target. Domestic market prices continue weak. Xinjiang hand-picked high grades are offered from small producers around 13’800 RMB/ton delivered Eastern China, the theoretical equivalent of about 88.00 c/lb for import under TRQ quota, paying 1% tax. Machine picked Xinjiang is available at 13’000 RMB/ton, and local cotton as low as 12’800 for grade 3. The largest mill in Shandong is still officially quoting a buying level of 13’000 RMB/ton for grade 328, about M 1.1/8; but since they already bought significant volume they are now only accepting limited quantities and started to select quality very strictly. Since in Eastern China at least one third of production is still in farmers’ hands, selling pressure is likely to continue for some more time. On the other hand, the Xinjiang production army has only sold very small volume and is still holding most of their production for now, deliberately offering at prices above the current market. Import business continues very slow with demand concentrated for afloat cotton or lots which can be guaranteed to arrive by end of February. Spinning industry should be running better in theory with falling cotton prices; in practice so far there has been little change from the generally negative outlook and demand is still very much restricted to hand-to-mouth buying. The information in this report is provided solely for informational purposes and should not be regarded as a recommendation to buy, sell or otherwise deal in any particular investment. Private customers should not invest in these products unless they are satisfied that the products are suitable for them and have sought professional advice. All information in this report is obtained from sources believed to be reliable and we make no representation as to its completeness or accuracy. The information may have been acted upon by us for our own purposes and has not been procured for the exclusive benefit of customers. 2 www.reinhart.com