facebook_pixel

Confusion Reigns in Market Following China Cotton Policy Announcements

Weighed down by unexpected announcements from China, cotton prices continued to trend lower and closed the week precariously resting at the 62 cents support level (61.89 cents), basis the New York December contract.

Coupled with the surprise announcement by the Chinese government that imports of foreign produced cotton would be strictly limited to the required WTA agreement minimum, the government also announced it would support grower prices in the Eastern provinces, the region where it has also made repeated announcements that it wanted cotton planting moved out of the respective provinces.

Yet, confusion still reigns supreme in the market, as traders attempt to decipher the actual Chinese cotton policy. As such, the New York ICE December contract lost some four percent of its value this week.

For example, on the heels of the above referenced policy announcements, the most recent dictates that cotton will not be sold from the strategic reserve for the coming twelve months, through October 2015. Thus, traders are left to wonder where additional cotton for spinning will come from. Most feel the government will actually allow additional imports. Yet, it is all but certain that imports to China will have to rise above the WTA minimum.

In the meantime, the market is left in confusion, and confusion is little more than excellent fodder for market bears. While the trading range remains intact (by the narrowest of margins), the nearby trend is negative, and it is most dangerous to go against the trend. Thus, the previously suggested 57 cent support level may yet come into play.

The Chinese cotton exchange was basically in a free fall all week, and it was that trading which dragged down the New York contract – albeit New York did have triple digit moves up and down all week. The price relationship between New York futures and the world price (A-Index) remains well entrenched, and will continue to do so.

Yet, there is no doubt that the Chinese contract has for now taken the world leadership as the price discovery market. Unfortunately, trading on that exchange reached the panic stage this week, as trading set daily and weekly volume levels. Again, as has been seen in all other markets once panic sets in, the trading leadership becomes emotionally based rather than fundamental (supply and demand) based. Chinese futures settled in the 93 to 95 cent trading range on the week, a loss of about five cents.

To understand the panic trading and why it will persist from time to time (once it does calm down), one only has to recall that, in recent times, the Chinese government purchased directly from growers 90 percent of the country’s production and sold directly to the textile mill some 60 percent of its needs. Now, just overnight, the government says, “Okay, Mr. Free Market, you take over, and you manage price, supply and mill demand. And by the way, we will micromanage things like exports and imports, and we will be back to look over your shoulder.”

Well, as the U.S. learned in all of agriculture – not just cotton – during the 50’s, 60’s, 70’s and 80’s, the free market does not function very well with the Government running the show. So will the Chinese. Too, in that China holds over half of the world’s cotton stocks, the world cotton market, the New York market, the Indian market and all others are caught up in this uncertainty, which will only allow for more panic trading.

In the meantime, the market will ATTEMPT to sort out the supply/demand events and trade as best it can. Yet, the situation lends itself to potential volatile trading, and that should be expected in New York pricing over the weeks to come. Basis levels will remain rather strong, however, as quality cotton still easily attracts offers of 50 to 300 points on December to the grower, based on quality differentials. Certain qualities attract yet even stronger premiums.

Once the Chinese market can find some trading stability, other world markets will immediately find that stability. Nevertheless, changes in Chinese policy have affected the Indian marketplace – one of equal or even greater size – and this compounding could make current trading periods appear dull.

Yet, current prices are attracting U.S. export sales. The U.S. has already sold or delivered some 57 percent of the USDA forecast for the year. Weekly sales appear to have increased this week on the lower price activity.

Topics: ,

Leave a Reply

Market Analysis Stories
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

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.

Market Analysis

Shurley: Demand Is Key to Price Strength and Stability

November 21, 2017

Demand is the key to cotton's future. We still have a way to go, but the outlook has certainly improved.

Market Analysis

U.S. Sales Booming to Meet Bullish Demand

November 17, 2017

Cotton appears to be caught in a battle between supply and supply. And that keeps prices well positioned to stay where they are.

Around The Gin
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.

Product News

Monsanto Sets 2018 Crop Protection Incentives

December 5, 2017

Monsanto will provide multiple tools, resources and products to help cotton and soybean growers maximize weed control in 2018.

Product News

Praxidyn’s Mixmate Named a 2018 AE50 Award Winner

November 27, 2017

The American Society of Agricultural and Biological Engineers has recognized Praxidyn's Mixmate portable ag chemical blending and recordkeeping system with a 2018 AE50 award.

Latest News
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.

Market Analysis

Shurley: Demand Is Key to Price Strength and Stability

November 21, 2017

Demand is the key to cotton's future. We still have a way to go, but the outlook has certainly improved.

Market Analysis

U.S. Sales Booming to Meet Bullish Demand

November 17, 2017

Cotton appears to be caught in a battle between supply and supply. And that keeps prices well positioned to stay where they are.

Market Analysis

Increased Cotton Demand Moving the Market

November 11, 2017

A bullish supply demand report for November proves that demand moves markets. And demand for cotton has resurfaced.

Market Analysis

Cleveland: Yields, Quality, Consumption Still Rising

November 4, 2017

Reports of high yields, premium quality and growing consumption are keeping prices at the higher end of the trading range.

Market Analysis

India and Frost Combine to Prop Up Market

October 27, 2017

India’s plan to keep more of its cotton for domestic use, plus a potential freeze in West Texas, propped up the market during the past week.

Market Analysis

Bears Growling on Harvest and Demand Challenges

October 22, 2017

Although current trading activity represents a bearish price outlook, Dr. O.A. Cleveland still believes the 65 cent price support will hold. . .even though more experts are abandoning that position.

Market Analysis

Shurley: October Numbers Not As Expected, But Prices Hold

October 18, 2017

USDA’s October production and supply and demand estimates are like apples – pick and choose and you’ll find some numbers you like...and some you won’t.

Market Analysis

Trying to Read the Market: Bearish, Neutral or Bullish?

October 13, 2017

After finding USDA’s October WASDE report initially bearish and somewhat neutral, cotton prices went mildly bullish thinking about stronger demand and the real size of the U.S. and foreign crops.