Prices Settle Back As Anticipation Builds for China Policy Announcement
September 5, 2014 One could speak of the monsoon returning to India – scattered, but beneficial as it has been. Or the spotty rains on the Texas plains, or even the seemingly constant rainy and cool weather in the Mid-South. Or then, the droughty Southeast, but now so much of that crop is irrigated.
However, the bottom line is that international mills are covered for about one month (two weeks more than last week), so they are sitting out for a couple of weeks in anticipation of increased new crop movement and the ongoing anticipation of the Chinese government’s announcement regarding price supports for the 2014 crop. Yet, it is that anticipation that has driven cotton prices back near the bottom of the current trading range.
Too, the market should remain range bound during the coming week as it awaits the USDA world supply demand report on September 11. The cotton will likely continue to trade within its well-defined channel.
Any break below 64 cents (Friday’s weekly settlement was 64.32 cents) opens the door for another test of the 62 to 63 cent level. Yet, mill activity should pick up over the weekend with prices sitting just above that support level. The first level of significant support below the 62 cent area sits at 57 cents and is judged extremely strong. There is further support just below 55 cents, but it would require a train wreck to break that low.
Much was made this week regarding the market’s inability to move above the 67 cent mark, basis December, despite the heavy price resistance sitting at that level. Now that prices have returned to near the bottom of the channel, numerous reports are that prices will break down into the mid to upper 50’s.
Let’s hope not. Yet, we all know I have been known to misread the tea leaves a time or two during my career.
The world crop size is still very much unknown. Too, the increasingly important size of the crop outside of China remains very much up in the air, or rather very much under the control of Mother Nature just yet. In fact, current conditions favor a smaller than currently expected world crop.
Another bearish grenade was lobbed the week regarding U.S. exports. Yes, U.S. export sales were minimal this week, as Chinese mills opted out of the market in anticipation of still lower prices for the 2014 crop that is beginning to enter the market. Yet, that crop is late to move, and the market is still not convinced that it will maintain a consistent flow – that is, more than the typical delays in the flow of Chinese cotton to mills should be expected.
Weekly export sales were a net of 82,900 RB of Upland and 5,300 RB of Pima. Sales were made across 18 countries (including Pima), an indication of widespread spinning activity. But sales volume was small, indicating fill-in type business only.
Additionally, Chinese mills continued to express a desire to buy U.S. cotton at current price levels. However, current import quotas expire the last week in December, and mills are thus limited on how far out they can buy in the export market. This is handicapping the Chinese mills, but we all must wait until the Chinese government declares its intentions for the 2014 price level for growers.
While trading in physical cotton was somewhat nonexistent this past week, cotton prices slid as few buyers were in the mix and the value of the U.S. dollar skyrocketed against the euro and European currencies. Thus, for now, the Chinese waiting game continues. But the current New York ICE trading range is expected to prevail.
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