facebook_pixel

Chinese Government Now a Marketplace Fundamental

The more things change, the more they stay the same.

Cotton prices continue to sit at the very bottom of the 62 to 72 cent trading range. Hanging onto its 62 cent support only by a thread, the nearby New York December contract eased back above 62 cents on a good trading day at week’s end. All week, the market flirted with a hard 61 cent trade, which would have begun setting off some sell orders. However, good mill buying held prices at the 62 cent mark.

The 62 cent level has proven super tough to penetrate, but the mills’ perception is that prices are moving lower. The great unknown Chinese government action continues to loom over the market with the weight of an oversized lead cap.

The world’s textile mills have reverted to simply buying hand to mouth as they “know” prices are moving lower due to the Chinese government’s actions and seemingly conflicting announcements – the Government will not sell from the reserve for 12 months…they will sell from the reserve about March 15…they will sell from the reserve once supplies become tight…they will not allow imports to exceed the WTO minimum requirements…they will micromanage a free market cotton market system…they will announce processing quotas later in the year…and the list goes on.

This hand to mouth buying paints a discouraging picture across the face of mill demand. Thus, international mills, more so than ever, have taken the attitude that they do not need to buy forward any cotton. Additionally, Chinese mills have reported the purchase of SM 1-1/8 inch cotton for as low as 61 to 63 cents – a seemingly dreadfully low price for 2014 crop cotton.

That is, the primary fundamental in the marketplace has now become the Chinese government. Thus, the marketplace is chock full with rumors, some of which will likely become true. Yet, to date, the Government has done one thing they said they would do – “We will let the price fall as low as it wants.” That is, we will subsidize growers such that their price received from the market and from the subsidy will be between 114 to 140 cents.

Based on the belief that such a commitment will continue to be true, futures market prices will likely move lower. But that does leave me vulnerable to any decision by the Government to either allow processing imports (the more domestic Chinese cotton the mill spins, the more imports it can bring in) and/or the total stoppage of selling reserve stocks for the entire marketing year.

Additionally, any lower price scenario also discounts the assumption that the U.S. crop will likely get smaller and is losing quality due to continued rains in Arizona, the Southwest and the Southeastern states. Moisture is not welcome on any cotton in the Northern Hemisphere from now through the end of the harvesting period. It can only represent the face of yield and quality deterioration.

The forthcoming USDA October supply demand report on October 10 will likely include a smaller U.S. and world crop, a smaller U.S. and world carryover, and a somewhat unchanged consumption estimate. Too, both the Chinese and Indian crop estimates are likely to be lower.

In the backdrop of all this, both U.S. and world consumption are set for a major boost in 2015, as equipment manufacturers for the spinning industry report as much as a one year backlog in orders. Additionally, both Chinese and Indian investors are discussing building new spinning operations in the U.S. The thought is that it is less expensive to ship the yarn than the raw bales overseas.

Additionally, the U.S. has one manufacturing process in which it can still claim world superiority – when a light or heating switch is turned on in the U.S., light or heat are forthcoming 99.9 percent of the time. Those limitations in other countries are beginning to have an impact on the cost of manufacturing.

While the U.S. is far from any increase in its cut and sew operations, the yarn spinning industry is back on its upward growth curve, and U.S. domestic consumption will increase further.

 

Topics: ,

Leave a Reply

Market Analysis Stories
Market Analysis

Cotton Prices Settle, Poised to Climb Again

February 16, 2018

The market’s downside move appears to be over, ending a three-week downturn.

Market Analysis

Cotton Futures Nudge Higher, Despite Forecast for Rising U.S. Sowings

February 13, 2018

Cotton futures nudged higher, despite a much-watched survey on U.S. sowings showing a seven-year high, as the estimate came in

Market Analysis

Still Optimistic, but Fundamentals Do Rule the Market

February 3, 2018

Last week’s price correction was overdue, yet the market is still positive. But it’s best to remember that the simple fundamentals of supply and demand do rule the day.

Market Analysis

“Here We Go Again” as Market Preps Another Run

January 26, 2018

The price breakout above 80 cents continues to build its base in the very low 80s as it prepares for its next challenge to the 85 cent level.

OA Cleveland
Market Analysis

Could Quality Shortage Push Cotton to a Dollar?

January 19, 2018

Cotton’s roller coaster price trip is on, and it’s really just beginning. The steep incline is in front of us.

Market Analysis

Shurley: Things to Consider as Prices Climb

January 19, 2018

The reasons for better prices seem fairly obvious, but the strength of the current uptrend has been surprising. Looking ahead, growers need to keep certain factors in mind.

Market Analysis

Cleveland: The Bull Will Continue Charging

January 12, 2018

Multiple market factors are at work, with demand continuing to lead the way to higher prices. That means the bull market will keep charging ahead.

Around The Gin
Product News

Bayer Shares the Risk with Cotton Farmers

January 26, 2018

Bayer offers replant, crop loss and yield protection to growers who plant FiberMax and Stoneville cotton seed.

Product News

Americot Adds New Sales Support in GA, KS and TX

January 23, 2018

Americot has expanded its sales support team in Georgia, Kansas and the Rolling Plains of Texas.

Product News

Indigo Offers Premium for Indigo Cotton Production

January 9, 2018

Indigo Ag has announced a new program that offers significant price premiums for U.S. cotton growers who contract to grow Indigo Cotton.

Product News

New Bayer Varieties Focus on High Yield, Adaptability

January 5, 2018

Bayer releases five new FiberMax and Stoneville varieties for introduction in 2018.

Product News

New PhytoGen TRiO Guards Cottonseed Investment

January 3, 2018

New PhytoGen TRiO seed treatment helps provide early season protection for young cottonseed from diseases, insects and nematodes.

Product News

Americot Adds Seven to Sales, Research Teams

December 20, 2017

Americot has added seven new sales and research associates to the company’s staff across the Cotton Belt.

Product News

Seven New Varieties in Deltapine Class of 18

December 11, 2017

Seven new varieties – including five Bollgard 3 XtendFlex offerings – join the Deltapine product lineup as the Class of 18.

Product News

Special Roundup Ready PLUS Incentives for Arkansas

December 7, 2017

Monsanto is offering a special Roundup Ready PLUS Crop Management Solutions platform in Arkansas for 2018 for growers planting XtendFlex cotton and Roundup Ready 2 Xtend soybean varieties.

Latest News
Market Analysis

Cotton Prices Settle, Poised to Climb Again

February 16, 2018

The market’s downside move appears to be over, ending a three-week downturn.

Market Analysis

Cotton Futures Nudge Higher, Despite Forecast for Rising U.S. Sowings

February 13, 2018

Cotton futures nudged higher, despite a much-watched survey on U.S. sowings showing a seven-year high, as the estimate came in

Market Analysis

NCC: Multiple Factors Offer Mixed Signals for Cotton

February 11, 2018

According to NCC economists, a few key factors will shape the U.S. cotton industry’s 2018 economic outlook.

Market Analysis

Talking Curveballs, Credibility and Carryovers

February 9, 2018

The February WASDE report served up a curve ball that caught the industry off guard. For the sake of USDA’s reputation, I hope they are correct.

Market Analysis

Still Optimistic, but Fundamentals Do Rule the Market

February 3, 2018

Last week’s price correction was overdue, yet the market is still positive. But it’s best to remember that the simple fundamentals of supply and demand do rule the day.

Market Analysis

“Here We Go Again” as Market Preps Another Run

January 26, 2018

The price breakout above 80 cents continues to build its base in the very low 80s as it prepares for its next challenge to the 85 cent level.

Market Analysis

Could Quality Shortage Push Cotton to a Dollar?

January 19, 2018

Cotton’s roller coaster price trip is on, and it’s really just beginning. The steep incline is in front of us.

Market Analysis

Shurley: Things to Consider as Prices Climb

January 19, 2018

The reasons for better prices seem fairly obvious, but the strength of the current uptrend has been surprising. Looking ahead, growers need to keep certain factors in mind.

Market Analysis

Cleveland: The Bull Will Continue Charging

January 12, 2018

Multiple market factors are at work, with demand continuing to lead the way to higher prices. That means the bull market will keep charging ahead.

Market Analysis

Cleveland: Don’t Ignore the Gift Horse. Feed the Market!

January 7, 2018

Don’t get caught looking a gift horse in the mouth. Cotton prices are at a profitable level for growers, and the market is asking to be fed.

Market Analysis

Shurley: New Year Cotton Policy Update

January 5, 2018

Recent legislative action in Congress could potentially bring cotton back under Title I commodity protection. Dr. Don Shurley explains the details.

Market Analysis

Shurley: December Report Seals the Deal

December 19, 2017

Based on the December USDA Crop Production numbers, any notion of this 2017 crop getting below 21 million bales seems unlikely at this point.

Market Analysis

It’s a Wonderful Day in Cotton’s Neighborhood

December 15, 2017

With apologies to Mr. Rogers…it’s a wonderful day in the neighborhood, and the cotton market has been mine.

Market Analysis

With Prices Rallying, It’s Time for “Significant Action”

December 8, 2017

The long-awaited rally above 70 cents appeared to mature this week. For those not already priced at 75 cents, it could be time to take significant action.

Market Analysis

Prices Push Above 70 Cents as Demand Remains High

December 2, 2017

Driven by tightening world stocks and led by an ever-increasing world consumption, cotton prices continue to move higher.