“Dramatic” Market Difficult to Nail Down

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A new current move up topped out above 97 cents in what was little more than panic trading, as this week’s trading range was a rather wide 800 points. One is tempted to call this a roller coaster, but that phrase does not conjure up enough drama for the current market.

The usual dose of what’s going in China, the speculative community salivating at the mention of cotton, and textile mills dancing everywhere in the market – both highs and lows – seem to be behind each trade. Throw in a full diagnosis of mad cow disease, and one pretty much can nail the cotton market.

The difficulty is placing the nail. It is somewhere between 89 and 98 cents. My 12-year-old son can come closer, but I can’t.

Nevertheless, at this stage in the marketing year, my expectations are that prices will trend lower. That is not a typo. The word from me has always been higher, but now I am using that bear word “lower.” But there will be no rush lower, just a tendency to move lower, since the mills have yet to work out of their massive bullish mill call sales. Recall, I just commented that another run to 98 cents could easily be in the works, and likely is. But it will be quick and over in a flash. The bull is very, very fat.

With all this action, the new crop December stood still at 79-80 cents. The old crop bullishness has not been able to bring December along the same path. As has been stated several times, I am not giving up on December, rather it will take some abnormal weather events to move it higher. The trading range for the coming two months should be between 81 and 76 cents, a rather narrow six-cent range.

The first indicator will actually come when USDA releases its March 30 plantings intentions. The annual report will be based on market and agronomic conditions as of March 1, however, it is viewed as a principal indicator of actual plantings. The industry range is from 11.5 to 10.8 million acres. The 11.2 to 11.5 million acre estimate appears forthcoming.

USDA released it final ginnings report of the year, indicating that 12.87 million bales were ginned, not the 13.2 million that USDA estimates had used. The market was expecting such a report, and it likely helped provide some of the spark in this week’s move higher. Yet, as with expectations, its price benefit immediately wore off.

Yet, this does indicate that U.S. ending stocks will likely range from 2.4-2.6 million bales, a very low number. In fact, with stocks below 3.5 million bales, the market will be somewhat fixated on new crop weather and agronomic conditions as the growing season progresses. The current forecast for the 2014 U.S. crop is 16.1 million bales. Yet, an unkind Mother Nature can easily reduce that to 13 million bales and open the door for the new crop December to jump to 85 cents and higher.

Export sales, while not booming, continue to be respectable with market prices above 90 cents. However, it must be recognized that the U.S. has little cotton available. Foreign mills are still somewhat uncovered for both third and fourth quarter needs, and this will keep pressure on prices. Yet, the Indian crop has met with a very wide and favorable response from the Asian textile industry, especially China. Thus, that acts to keep old crop prices somewhat under control.

We are set for the upcoming Lubbock Gin Show. Maybe I can take some rain with me. Volatility is the key, and the market will be jumping. This market needs more cotton!

Cleveland is a Professor Emeritus, Department of Agricultural Economics, Mississippi State University.
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