Cleveland: Cotton’s Bull Remains On the Loose

The bull remains loose as he found excellent price support at 88 cents basis, old crop and 86 cents, basis new crop December. These were, and remain, important support levels to keep the bull healthy and prevent a return to the 80 cent level.  The demand that surfaced in the 86-88 cent area was sufficient to prevent additional downside activity, halt the ongoing price correction, and to allow for the beginning of another charge back to 90-94 cents. Nevertheless, we should most likely look for the market to remain cautious as it continues to sort through the planting season. The outlook going forward: cautious, but with the idea of heading higher. The important factor was that mills came back for more demand on the selloff into the mid-to-high 80s. 

Another important fundamental was the managed funds desire to continue its propensity to buy cotton futures. While some liquidation occurred, managed funds increased their net long positions during the week. This was an indication that their reading of the technical factors in the cotton market remains bullish. 

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Export sales were moderate given the prices facing mills. Net sales of Upland on the week were 143,000 RB while Pima sales were 12,600 RB of Pima. Major buyers were the usual, including Turkey, China, Vietnam, Bangladesh, Mexico and Indonesia. Too, some 16 countries purchased U.S. cotton, an indication of broad based demand.  We still anticipate USDA to increase consumption in Turkey, Bangladesh and China as well, decreasing the level of carryover stocks held by India.

Export shipments reached 339,700 RB of Upland and 20,800 RB of Pima. As of this week, shipments and outstanding sales total over 11.8 million bales and remain on track to climb to 13 million, some 250,000 bales above the current USDA estimate.The current delivery pace is some 1.4 million bales ahead of last year’s pace.

The market received a psychological boost from the Chinese announcement that for the 2013 crop it would continue its ongoing program of purchasing cotton for its national strategic reserve. However, it was the USDA March plantings intentions report that provided the primary boost in market prices. It indicated that 2013 U.S. grower intentions were to plant 10.3 million acres. The report was at the lower end of private estimates. Yet, recall that the report was based on conditions as of March 1. Thus, we should expect another 200,000 to 300,000 acres of planting, principally on the Texas plains. Nonetheless, the ongoing drought conditions facing the Texas plains will likely cause more than average abandonment, offsetting any production from these acres. Texas planted acreage was estimated at 5.5 million acres, down 1.05 million from 2012. Thus, some 58-59 percent of the U.S. crop will be planted in the Southwestern states of Texas, Oklahoma and Kansas. Too, Georgia plantings will be in line with 2012 plantings, a clear indication that the February and March price rally kept that state in the “big time” cotton business. The report can be viewed in its entirety by clicking here

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