California growers have had nearly perfect conditions for cotton so far this season.

These were the observations of a panel of cotton analysts speaking on crop and market conditions at the Ag Market Network's May teleconference.

According to Jarral Neeper, president of Calcot, Ltd., “with few exceptions, cotton crop conditions in California couldn't be any better. We had a little bit of a strange spring, but we had a heat wave that hit right at the prime planting and emergence point. Whatever is up looks really good.”

The same goes for Arizona, Neeper says. “The crop has gotten off to a great start. Both Arizona and California growers couldn't be any happier right now.”

Mike Stevens, with Swiss Financial Services sees a possible bottom for December cotton futures of 55 cents. “I don't think we're going back to the 40s. We could see an upside of 65 cents.”

Stevens noted that hand-to-mouth buying by mills, “has worked so well for so long. But the mills have gotten way behind and this puts some support under the downside. You're going to have mill fixations coming in those down areas.”

Stevens added that a falling export report after a nine-day rally in the cotton market in early May, “validates the thought that we have priced ourselves out of the market.”

While purchases of cotton by both China and India to build inventory were at least partly responsible for the recent run-up in cotton prices, analysts are concerned about news that China and India are now starting to release some of those stocks.

Neeper sees the December contract at somewhere between 52 cents and 54 cents on the downside with an upside potential of somewhere between 65 cents and 68 cents.

Another factor helping cotton is that the grain complex is pushing higher again, according to Neeper. “Soybeans could continue to be volatile with a bias toward the upside, which could help corn and wheat. If the grains remain relatively firm, that's going to help cotton.”

Another bit of good news is that in May, USDA raised its world cotton consumption number to 113 million bales. “Estimated world production was reduced to 106.5 million bales for 2009,” Neeper said. “This should be positive for the rest of the summer and into the new marketing year.”

On the impact of large fund buying on the market, Ag Market Network Executive Director Pat McClatchy noted, “Last year, and already again this year, we're seeing what they can do when they buy the market. We always seem to go higher than what we should go and we seem to go lower than we should go. So keep in mind that markets have the potential to move up considerably.”