Cotton Prices Move Higher, But Nearing Point of Likely Market Resistance

The December supply demand report and the weekly export sales report were both void of any surprises this past week, but prices still moved higher.

The March contract closed above 83 cents and is approaching the 84-to-85 cent mark suggested last week as a probable point where price resistance will be too stiff to penetrate. This idea was supported by the export sales report and the technical factor, open interest. Certificated stocks still need to rise, as they have fallen below 60,000 bales with concerns that more decertification is coming. Either way, that amount is not enough.

Thus, the market must find a way to bring more to the board. Hopefully, this week’s move above 83 cents will do that. Nevertheless, I continue to look for the current rally to exhaust itself near the current level.

Both world and U.S. supply demand estimates were little changed from the November report. While totals remained much the same, some of the country-by-country estimates did change. Principally, the Chinese crop was lowered another 500,000 bales, down to 32 million bales – in line with Chinese announcements. USDA did, as it somehow seems to do, increase world carryover a bit.

Weekly U.S. export sales slowed somewhat, ending a seven-week run of more than 200,000 RB bales sold per week. The slowing was not unexpected, as the reporting period corresponded with price activity near or above 79 cents in the March contract after a period of 77-to-78 cent prices.

As stated, the price advance to 83 cents will likely continue to limit sales. Still, net sales of Upland on the week were 174,100 RB and Pima sales were 3,300 RB 0f Pima. To date, total U.S. sales of all cotton have climbed to 7.03 million bales.

Chinese mills continue to shy away from sales from the national reserve with the exception of good quality cotton from Xinjiang and government-owned imported cotton. Their quality crisis continues and, as of yet, has not come home to roost.

The limited availability of good quality in the Chinese reserve continues to strain textile mills by limiting the volume of quality yarns they can produce. Thus, the upstream mills continue to purchase imported yarn from around the world – including the U.S. – at month-on-month and year-on-year record levels. Imported cotton yarn does not carry the stiff penalty associated with imported raw cotton. Thus, world demand remains strong, despite the lower level of yarn production coming from China.

This quality problem will linger and keep a floor under prices. Nevertheless, at least a measurable proportion of the current rally has been associated with short covering by funds and not with any increase in open interest. This is another reason to suggest that the 84-to-85 cent level in the old crop March is top heavy.

Growers may want to consider purchasing puts to cover a portion of new crop production. But, that discussion will wait for another time.

Topics:

Leave a Reply

Market Analysis Stories
Market Analysis

Prices Hold as U.S. Quality Cotton Moves to Market

December 2, 2016

U.S. crop quality is essentially the highest on record. While mills may be facing potentially higher prices, they are getting a bargain on their U.S. purchases.

Market Analysis

Market Set for Shift to March Contract

November 21, 2016

The market is expected to rally higher early in the week as shorts buy their way out. Grower prices will then be based on the March contract, as December will be its expiry period.

Market Analysis

Watch for Volatility as December Contract Period Ends

November 4, 2016

There are only a few trading days left before March becomes the lead spot month. The best remaining pricing opportunity for growers should be within this time frame, which could be active and volatile.

Market Analysis

Potential Supply Squeeze Could Push Market Higher

October 31, 2016

With December first notice day only three weeks away, mill buying and other potential squeeze factors could push the December contract to 75 cents and beyond.

Market Analysis

Cleveland: Prices Healthier; China’s Buying

October 21, 2016

After jumping higher on the heels of a bullish world supply demand report, the surge in cotton prices was halted at the 72 cent resistance level. But China is back in buying mode, snapping up nearly 200,000 bales.

Market Analysis

Shurley on Cotton: Prices Showing Stability and Potential

October 17, 2016

Many growers want to know when and if the market will get back above 70 cents and provide options to enhance marketing positions. Several factors now in play could give them that opportunity.

Market Analysis

Cleveland: Market Weakens as Prices Begin to Slide

October 9, 2016

The market is showing signs of vulnerability, as cotton appears headed back to the mid-60s.

Around The Gin
Product News

Valent Introduces Valor EZ Herbicide for 2017

December 1, 2016

Valent has introduced Valor EZ Herbicide as a residual herbicide partner for the new next generation seed systems in cotton and soybeans.

Product News

Wearable Cotton Sensors Developed

November 29, 2016

Conductive cotton fabrics have been developed into flexible wearable sensors, creating new options for cotton textiles.

Product News

Dow AgroSciences, U.S. Farmers Disagree with Proposal to Revoke Chlorpyrifos Tolerances

November 10, 2016

Dow AgroSciences is standing by the safety of proper use of chlorpyrifos, in the face of EPA’s release of a pre-publication copy of the Notice of Data Availability related to its assessment of human health risks associated with the insecticide.

Product News

Advanced Germplasm and Traits Help Growers Thrive in Cotton

November 7, 2016

PhytoGen offers options to improve fiber quality and control weeds, helping growers to out-best their best and thrive in cotton.

Product News

EPA Sets Comment Period for Enlist Duo Label Expansion

November 2, 2016

The U.S. EPA has set a public comment period until December 1 for proposed label amendments for Enlist Duo, which would allow use on Enlist cotton and extend product use on all Enlist crops to 19 other states.

Product News

Helping Cotton Growers Be Good Neighbors

November 1, 2016

Good fences make good neighbors. But these days, on-target herbicide applications also can help make growers good neighbors.

Product News

Americot Offers New XtendFlex Cotton Varieties for 2017

October 28, 2016

In 2017, Americot will offer three new Bollgard II XtendFlex varieties and one new XtendFlex only variety to cotton growers.

Product News

Bayer Delivers Right Combinations for Performance and Profit

October 27, 2016

The extensive economic data documenting earnings from FiberMax and Stoneville varieties helps make the Bayer lineup the first stop for variety decisions.

Latest News
Market Analysis

Prices Hold as U.S. Quality Cotton Moves to Market

December 2, 2016

U.S. crop quality is essentially the highest on record. While mills may be facing potentially higher prices, they are getting a bargain on their U.S. purchases.

Market Analysis

Market Set for Shift to March Contract

November 21, 2016

The market is expected to rally higher early in the week as shorts buy their way out. Grower prices will then be based on the March contract, as December will be its expiry period.

Market Analysis

Shurley on Cotton: Closing Out 2016, First Look at 2017

November 21, 2016

The 2016 U.S. crop may still be somewhat of a question mark, but USDA’s November numbers provided clarity on a few things – the crop got smaller in some areas as expected, but still got bigger overall.

Market Analysis

Cleveland: Volatility Reinforces Market Fireworks

November 11, 2016

The cotton market continues to show extreme volatility, as mills and speculative funds attempt to fix prices before the expiry of the December contract. The same fireworks are predicted for the next two weeks.

Market Analysis

Watch for Volatility as December Contract Period Ends

November 4, 2016

There are only a few trading days left before March becomes the lead spot month. The best remaining pricing opportunity for growers should be within this time frame, which could be active and volatile.

Market Analysis

Potential Supply Squeeze Could Push Market Higher

October 31, 2016

With December first notice day only three weeks away, mill buying and other potential squeeze factors could push the December contract to 75 cents and beyond.

Market Analysis

Cleveland: Prices Healthier; China’s Buying

October 21, 2016

After jumping higher on the heels of a bullish world supply demand report, the surge in cotton prices was halted at the 72 cent resistance level. But China is back in buying mode, snapping up nearly 200,000 bales.

Market Analysis

Shurley on Cotton: Prices Showing Stability and Potential

October 17, 2016

Many growers want to know when and if the market will get back above 70 cents and provide options to enhance marketing positions. Several factors now in play could give them that opportunity.

Market Analysis

Cleveland: Market Weakens as Prices Begin to Slide

October 9, 2016

The market is showing signs of vulnerability, as cotton appears headed back to the mid-60s.

Market Analysis

Cleveland: What Goes Up, Must Readjust

September 30, 2016

Last week’s higher prices limited export sales, and prices had to move lower this week, back down to mill offers.

Market Analysis

Cleveland: Bulls Ride Prices into the Mid-70s

September 23, 2016

Two weeks ago, we suggested that the USDA supply demand report would be neutral and the market would drop, yet only to reverse to and jump higher. It jumped this week. Wildly higher.

Market Analysis

Cleveland: The Bear/Bull Balance Continues

September 19, 2016

Cotton prices ended the week lower, but made gains after triple digit losses in trading that followed USDA’s September supply demand report.

Market Analysis

Shurley on Cotton: Market Unhappy with September Estimates

September 15, 2016

Whatever the market was expecting from the September WASDE report, it didn’t get. So prices reacted accordingly – down.

Market Analysis

Bulls Feed on Cotton Trade Opportunities

September 12, 2016

Although U.S. and world crops are slightly larger than originally estimated, production difficulties in Pakistan and other countries will continue to boost world cotton trade and add support to the market.

Market Analysis

Cleveland: The Bulls Battle Back

September 6, 2016

The December contract again became the darling of the bulls, who won the week after having their backs slammed against the wall.