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

Market Analysis

Current Market Level Holding Its Ground

December 19, 2014

The market’s ability to hold its current level has overshadowed the fact that cash prices around the world have firmed a bit, signaling a stronger basis position for most growths.

Market Analysis

Cotton Market is Ripe for a Rally

December 5, 2014

Current price consolidation activity has helped uncover excellent demand. A short covering rally could possibly be triggered sooner than later.

Market Analysis

Plexus: Market Showing Signs of Life

December 5, 2014

After closing the previous 14 sessions in a very tight price band, March cotton started to break out to the upside, boosted by a firmer cash market and possible spec buying.

Market Analysis

Shurley on Cotton: New Round of Weakness Sets In

November 25, 2014

Merchants are now pricing cotton basis the March 2015 futures contract. But March futures – and all prices – are showing a new round of weakness.

Market Analysis

I Mean It This Time. The Bottom Is In.

November 24, 2014

I said it at 61/62 cents, so I’d best say it for 57 cents. The bottom is in.

Market Analysis

Plexus: Spec Movement Reveals Downside of Sideways Market

November 17, 2014

The recent trading action that pushed cotton prices into the 50s is linked to the interplay of spec short covering and spec long liquidation, which should keep the market in its current sideways trend.

Market Analysis

Shurley on Cotton: November Numbers Mostly Neutral, Prices Hold

November 11, 2014

USDA’s November crop production and supply/demand numbers are little changed from the October numbers.

Around The Gin

Product News

Deltapine Announces Class of 15 Cotton Varieties

December 16, 2014

Deltapine has announced two new high-yielding cotton varieties for its Class of 15, with several potential varieties awaiting regulatory approvals of the Bollgard II XtendFlex technologies.

Precision Technology

NORAC Hybrid Mode Receives U.S. and European Patent Approval

December 8, 2014

NORAC Systems International Inc.’s Hybrid Mode in-crop spraying feature has received patent approval in the U.S. and Europe.

Product News

Americot Adds Another High Yielder for 2015

November 24, 2014

Americot rode to success on the performance of two top varieties in 2014. For 2015, the company is adding another workhorse variety to the stable.

Product News

CROPLAN a Brand to Watch for 2015

November 21, 2014

Growers familiar with CROPLAN corn and soybean varieties in the South may want to keep an eye on the company’s cotton program, too.

Product News

Deltapine Focused on Raising the Yield Bar in 2015

November 17, 2014

No brand of cotton seed was planted on more acres in 2014 than Deltapine. So it stands to reason that the company’s variety researchers are preparing to introduce monumental changes to their seed lineup in 2015.

Product News

Growth Continues for Dyna-Gro and All-Tex

November 13, 2014

Crop Production Services has put a two brand approach in place for its Dyna-Gro and All-Tex brands of cotton. And their varieties are getting stronger each year.

Product News

PhytoGen Gaining Foothold in West Texas Market

November 12, 2014

In a year that saw PhytoGen introduce several new varieties to the Cotton Belt, an old standard once again stole the headlines as the company looks to gain more of the Southwest market.

Product News

Monsanto, Sumitomo and Valent Extend Crop Protection Partnership

November 10, 2014

Monsanto, Sumitomo Chemical and Valent U.S.A. have agreed to extend their strategic partnership in Monsanto’s Roundup Ready PLUS Crop Management Solutions platform for U.S. cotton and soybeans.

Latest News

Market Analysis

Current Market Level Holding Its Ground

December 19, 2014

The market’s ability to hold its current level has overshadowed the fact that cash prices around the world have firmed a bit, signaling a stronger basis position for most growths.

Market Analysis

Plexus: Slight Upward Bias in a Sideways Market

December 19, 2014

The market appears to be holding in a sideways to slightly higher range between 59 and 63 cents. But don’t rule out spikes to higher levels on spec short covering.

Market Analysis

Market Bumps Up on News of Smaller U.S. Crop Numbers

December 15, 2014

USDA’s lower projections for U.S. cotton production should strengthen the current global demand shift in favor of U.S. cotton. The implication is a relative higher price.

Market Analysis

Cotton Market is Ripe for a Rally

December 5, 2014

Current price consolidation activity has helped uncover excellent demand. A short covering rally could possibly be triggered sooner than later.

Market Analysis

Plexus: Market Showing Signs of Life

December 5, 2014

After closing the previous 14 sessions in a very tight price band, March cotton started to break out to the upside, boosted by a firmer cash market and possible spec buying.

Market Analysis

Shurley on Cotton: New Round of Weakness Sets In

November 25, 2014

Merchants are now pricing cotton basis the March 2015 futures contract. But March futures – and all prices – are showing a new round of weakness.

Market Analysis

I Mean It This Time. The Bottom Is In.

November 24, 2014

I said it at 61/62 cents, so I’d best say it for 57 cents. The bottom is in.

Market Analysis

Plexus: Spec Movement Reveals Downside of Sideways Market

November 17, 2014

The recent trading action that pushed cotton prices into the 50s is linked to the interplay of spec short covering and spec long liquidation, which should keep the market in its current sideways trend.

Market Analysis

Shurley on Cotton: November Numbers Mostly Neutral, Prices Hold

November 11, 2014

USDA’s November crop production and supply/demand numbers are little changed from the October numbers.

Market Analysis

Prices Still on the Path to Nowhere

November 7, 2014

Cotton prices continued their path to nowhere and are expected to continue the same back and forth trading action, reinforcing the thought that the market has bottomed out.

Market Analysis

Prices Hint That the Market Bottom Is In

November 3, 2014

Goblins may continue to haunt the cotton market past the Halloween holidays. But the market is giving more signals that the bottom is in.

Market Analysis

With WTO Brazil Settled, Cotton Casts a Wary Eye on Chinese Policy

October 31, 2014

With the conclusion of the WTO Brazil case, the U.S. cotton industry can bring a renewed focus to the challenges ahead, coming from a familiar source.

Market Analysis

Shurley on Cotton: Lackluster Week Closes on a High Note

October 27, 2014

An end of week uptick closed the market up 81 points from the previous week. But the longer-term direction is still sideways, with a range of mostly 62 to 67 cents.

Market Analysis

Same Song, Same Tune – Market Sings the Low-to-Mid 60s Blues

October 24, 2014

The same record that has been spinning for weeks is still playing. The 61 to 62 cent price resistance holds firm, attempts to close above 65 cents continue to be thwarted, and the potential for a short covering rally lingers strong in the background.

Market Analysis

Plexus: Market “Boxed In” Between Support and Resistance

October 24, 2014

Volatility dropped this week, as the market is discounting a scenario in which prices are not expected to change significantly over the coming months. Once all harvest is complete and sorted out, we may see renewed pressure on cash prices.