Cotton Trade Strong, as Weather and China Take Control of New Crop

Cotton closed the week higher, as the May and December contracts were up some 100 points. The July was marginally better, but essentially unchanged from the prior week. Nevertheless, most of the active contracts traded through triple digit days all week.

The old crop May contract moved to first notice day with little fanfare, as mills became active with their May price fixations. Yet, there remains more than a bucket-load of fixations to fix on the July contract. This will continue as bullish fundamentals support the July contract.

July will likely see another run that will challenge the 95-cent mark, but it does appear to be tiring. Prices have done their job in rationing cotton supplies, but most sellers have some cotton to offer. In fact, offers are more frequent than bids as evidenced by the widening cash basis, and this weakness is very noticeable at all global origins.

As the July contract works through the July 31 end of the 2013-14 marketing season, look for the trading range to expand to the ten-cent range between 85 and 95 cents.

The December contract finally cleared the 82-cent barrier and now has its sights set on 85 cents. There will have to be a few teeth pulled before that is done, but the technical objective is there.

Mother Nature has control of the new crop – from freezing rain and snow in China, to early forecasts of a weak monsoon over the Subcontinent and Southern Asia, and to the well-documented drought in the Southwestern and Western U.S. These forces – and others – are filling the bull’s cup at present.

The water shortage in the Western U.S. has taken three- and four-bale per acre cotton out of production. Thus, the market is beginning to kill the crop before it is even planted. It is not unusual for the market to kill a crop two or three times before it is up and established. However, the 2014 crop is dying its first death in the current market.

News headlines include the already-approved recycling of sewage waste for human water consumption (Wichita Falls) and the fact that the first 90 days of 2014 were the third driest in some 60-70 years for West Texas (recall the Texas long-term drought cycle has been referenced for a number of weeks.)

The Texas drought is more newsworthy this year because there had been an adequate supply of high quality cotton to satisfy world demand in the three prior years. Such is not the case this year. While many focus on the massive supply of stocks held in China, the market is discovering that the bulk of the Reserve’s cotton fails to meet the quality standard required by major spinners, particularly the standard required for high count yarns. Even the staple length of the 2013 Xinjiang crop has proven to be short, and, thus, undesirable.

Paraphrasing Samuel Taylor Coleridge (and with apologies to his worthy legacy), “Cotton, cotton everywhere, and not a bale to spin.”

With that backdrop, the weekly export sales report indicated China purchased 105,000 RB for May-July shipment. Most were left asking why, and now we know – Chinese mills need cotton. Too, in response to the government’s move to a market economy, cotton production will decline in China. Further, Chinese mills are taking up less than one third of the cotton being offered by the Reserve. Thus, China will remain a major importer of U.S. cotton.

The summation of these and other factors will continue to work to maintain cotton prices above 80 cents for the foreseeable future.

Open interest in both the July and December contracts has seen noticeable increases over the past two weeks. While some longs are taking profits, other longs have re-entered the market. This potentially bodes well in helping control the volatility in the market, and that is expected to continue for the remaining life of the July contract. Yet, July could still see a ten-cent swing in the coming month.

No need to get bearish now. Chinese actions and Mother Nature seem to feel the mid-80s is good for cotton prices. The question is – can Mother Nature tweak it higher?

Topics: ,

Leave a Reply

Market Analysis Stories
OA Cleveland
Market Analysis

Dog Days of August Keep Market on a Lazy Pace

July 31, 2015

In the absence of a weather event in the near turn, the dog days of August will keep this low volatility market backing and filling at a very slow pace.

Market Analysis

Cleveland: Market Movement Still Stuck in the Mud

July 24, 2015

It looks as if the cotton market is frozen in time, and some teeth may have to be pulled in order to get the market moving again.

Market Analysis

July Supply Demand Report Proves to Be a Bear in Bull’s Clothing

July 13, 2015

The release of USDA’s July supply demand report quickly turned a big bull report day into a date with the big bear.

Market Analysis

Shurley On Cotton: A New Floor for Planted Acres

July 2, 2015

  By Dr. Don Shurley The long-awaited and much anticipated first estimates of actual crop acres planted for 2015 are

Market Analysis

Will Spring Rains Offer Price Relief in 2015?

July 2, 2015

Will this year’s decline in planted acres offer some price release sometime soon? That’s the question waiting for an answer.

OA Cleveland
Market Analysis

Late Week Fireworks Could Signal Something Bullish for Cotton

June 29, 2015

Round and round and round she goes… Where she stop no one knows. The circus crier could have found employment

Market Analysis

Unchanged Variables Keep Market Moving Nowhere Fast

June 22, 2015

It’s the lull before the storm, and nothing in the cotton market will change until Mother Nature makes her decisions.

Around The Gin
Product News

On-Farm Research Helps Ease Grower Questions About Enlist System

July 31, 2015

Southern cotton and soybean growers who have worked with the Enlist Weed Control System in on-farm research plots are now sharing their experiences.

Product News

Nufarm Introduces Panther SC Herbicide

July 24, 2015

Nufarm is introducing Panther SC herbicide, a new broad-spectrum herbicide for use in cotton and other Southern row crops.

Product News

USDA Deregulates Dow AgroSciences’ Enlist Cotton Trait

July 23, 2015

The USDA has deregulated Dow AgroSciences’ Enlist cotton trait in the United States.

Product News

Ratting Out Copper Theft

June 10, 2015

A simple alarm technology is helping to stop copper thieves who target irrigation systems.

Product News

EPA Approves New Premix for 2016 for Cotton, Soybean Weed Control

May 29, 2015

Cotton and soybean growers will have a new weed control option in 2016 with Warrant Ultra Herbicide, a premix of acetochlor and fomesafen.

Product News

Deltapine NPE Program Begins Eighth Year of On-Farm Variety Evaluation

April 28, 2015

Nearly 200 farmers will be part of the Deltapine New Product Evaluator program this year to help evaluate cotton variety candidates for the Deltapine Class of 16.

Product News

EPA Approves Enlist Duo Herbicide for Use in Additional States

April 2, 2015

The EPA has approved Enlist Duo herbicide for use in nine additional states, including four in the Cotton Belt.

Product News

New 2015 CROPLAN Cotton Varieties Feature Bollgard II XtendFlex Technology

March 19, 2015

WinField is adding Monsanto’s new Bollgard II XtendFlex cotton trait to two new CROPLAN cotton varieties for 2015.

Latest News
Market Analysis

Dog Days of August Keep Market on a Lazy Pace

July 31, 2015

In the absence of a weather event in the near turn, the dog days of August will keep this low volatility market backing and filling at a very slow pace.

Market Analysis

Cleveland: Market Movement Still Stuck in the Mud

July 24, 2015

It looks as if the cotton market is frozen in time, and some teeth may have to be pulled in order to get the market moving again.

Market Analysis

Shurley on Cotton: The Path to 70 Cents Is Still Negotiable, but Rocky

July 24, 2015

The goal of 70 cents is still possible, but each passing day likely lowers the odds that we can get there. We just need to make sure we know what our alternatives are and act accordingly.

Market Analysis

Shurley on Cotton: Prices Tracking Back Down the Same Row

July 13, 2015

If cotton prices were a piece of heavy farm machinery, the market would have a serious compaction problem, tracking over the same ground time after time after time.

Market Analysis

July Supply Demand Report Proves to Be a Bear in Bull’s Clothing

July 13, 2015

The release of USDA’s July supply demand report quickly turned a big bull report day into a date with the big bear.

Market Analysis

Shurley On Cotton: A New Floor for Planted Acres

July 2, 2015

  By Dr. Don Shurley The long-awaited and much anticipated first estimates of actual crop acres planted for 2015 are

Market Analysis

Will Spring Rains Offer Price Relief in 2015?

July 2, 2015

Will this year’s decline in planted acres offer some price release sometime soon? That’s the question waiting for an answer.

Market Analysis

Late Week Fireworks Could Signal Something Bullish for Cotton

June 29, 2015

Round and round and round she goes… Where she stop no one knows. The circus crier could have found employment

Market Analysis

Unchanged Variables Keep Market Moving Nowhere Fast

June 22, 2015

It’s the lull before the storm, and nothing in the cotton market will change until Mother Nature makes her decisions.

Market Analysis

Marking Time Thanks to USDA, China and Mother Nature

June 14, 2015

The cotton market marked time this past week, thanks to USDA, China and Mother Nature.

Market Analysis

Shurley on Cotton: June Numbers Leave Bulls in the Corral for Now

June 12, 2015

Cotton growers are optimistically waiting for prices to break to the upside. But patience is wearing thin.

Market Analysis

Cotton Market Poised to Respond to Mother Nature

June 8, 2015

The range bound trading continues for cotton without any change in sight until time passes and Mother Nature does what

Market Analysis

Mother Nature Now Controls the Market

June 1, 2015

Mother Nature has taken control of the market, thanks to weather-related acreage losses in the U.S., India and China.

Market Analysis

Shurley on Cotton: Prices Steady, But Tempting Downside Support

May 27, 2015

Amid the volatility and unknowns of the cotton market, this much we know – cotton production in 2015 will require patience, a clear understanding of the risks and careful evaluation of marketing tools and choices.

Market Analysis

Weather Worries Put Cotton Market on the Defensive

May 26, 2015

The cotton market found itself on the defensive this past week, as weather issues in all cotton-producing countries helped drive the dollar higher and prices lower.