Cleveland: Don’t Sell Your Cotton Picker

Don’t plan on selling your cotton picker will be my personal theme as the cotton industry gathers at the annual Beltwide Cotton Conferences in San Antonio beginning January 7. Over the past two months the market has demonstrated not only the need for cotton, but specifically the need for quality U.S. cotton. Export sales far surpassed two million bales in less than two months and the nearby New York ICE cotton contract surged nearly 800 points. Yes, the final two trading days of 2012 did give back some 240 points but, it should also be recognized that solid demand surfaced with prices above 75 cents. It has been essentially a year since the market has seen demand above 75 cents. Too, from a technical perspective, the market preformed just as the charts predicted. The market was overbought on Wednesday’s close and settled 105 points lower on Thursday. Then it showed a more important key reversal on Thursday, allowing for Friday’s 135 point sell off.   

As evidenced by the week ending sell off, the market keeps a single eye focused on the potential pall cast by the Chinese stocks. That is, the market is demonstrating concern over China “dumping” its cotton stocks. Yet, such would be severely counterproductive to Chinese domestic policy. With China continuing to purchase 2012 production from farmers at some 141 cents per pound, the Chinese government has overtly supported the world price of cotton, just as some U.S. policies did in decades past. The policy of the Chinese government is to maintain a high price for cotton. Thus, New York cotton futures will continue to push prices toward the 78 cent level over and over again. Like a battering ram, a multitude of attempts will eventually blast through the 78 cent door, allowing prices to make a run at the 82 cent level. Yet, the battering ram is still a bit green and will need a bit more curing before having the power to push the market higher. As planting of the 2013 crop nears, the ram will have a couple more charges. 

As noted, export sales remain very positive even as prices jumped the 75 cent mark. Net Upland sales for the week ending 12/20/2012 totaled 283,300 RB with Pima sales of 14,700 RB. Another 3,900 RB of Upland were sold for the 2013/14 marketing year. These sales continue to point to improved global demand. As a result the market will continue to look for the USDA, in its monthly world supply demand reports, to increase consumption and world trade with the result being lower world carryover. Again, note the date for the Beltwide Cotton Conferences, January 7, in San Antonio.