A bit over 200 years ago Samuel Taylor Coleridge, in the longest of his poems wrote:
“…Water, water, every where, And all the boards did shrink; Water, water, every where, Nor any drop to drink.”
So goes the cotton situation in the world’s largest cotton producing and consuming country, China. Cotton, cotton everywhere and not a bale to spin. Cotton, cotton everywhere and not a bale to spin. And the price goes merrily along. Chinese mills have been slow to take up the overpriced domestic cotton and still favor imported cotton. Additionally, Chinese imports of yarn continue to set record levels. The market bulls continue their feeding as the available supplies of world cotton stocks are worked lower and lower.
In turn, this pulls prices higher as the market is working overtime to pop through the 84 cent mark, basis both March and the new crop December contracts. That price resistance will eventually fall, but for now it will almost certainly continue to weigh heavily over the market.
The options expiration in the March contract should provide some fireworks and possibly the upcoming first notice day (FND) of the March delivery period could add more. Thus, volatility could inundate the market and prices could trade between 78 cents and 84 cents in the near term, but the higher price will survive at the end of the day.
With the market trading at its highest level since May 2012, it is not likely that the “higher” price will attract additional acres. The ongoing drought in South America is pressuring both cotton and soybeans, but soybeans are currently gaining more than cotton. Thus, possibly fewer acres will be planted to cotton than expected. The National Cotton Council’s (NCC) plantings intentions report is scheduled for release on February 8. Historically, that is an excellent predictor of annual plantings. It should be so again.
Weekly export sales of Upland cotton were a net of 131,300 RB and Pima of 21,600 RB. While not the near 300,000 bales in weekly sales the market has become to expect, those sales were very strong given that they were made with futures above 80 cents. Sales were widespread. 17 countries were buyers; thus, demand is widespread.
Again, do not be concerned if the market becomes more volatile over the next couple of weeks. The bulls are having a good run. The managed funds are back in the cotton ring with big money and we have a few more cents. I have earlier commented that 86 cents gets a bit top heavy for me, but Mother Nature is playing unusual cards in much of the world. Australia and Brazil will have weather reduced crops. Technical indicators have been very supportive of the market for four months. Fundamentals are now focusing on higher prices. Too, we note that the highly respected ICAC has now joined in the higher price parade. Dress in your finest marching uniform, the parade route circles the New York ICE.