Cotton prices suffered a bit more seepage in the past week. The A-Index slipped below 89 cents, and the December New York contract spent a bit of time below 83 cents, but settled the week at 83.21 cents. Demand concerns pressured the market lower early in the week, but a positive weekly export sales report, coupled with a favorable employment report for the U.S., sent prices above 83 cents at week’s end, thanks to Friday’s 91-point jump.
The battered and bruised 81-to-82 cent support remains in place as mid-September approaches with the Midsouth and Southeast needing warm, dry weather to stretch well into October. Too, the Texas Plains needs to fend off any cold weather and push its first frost date into late October if whatever is left of the dryland acreage is to have time to mature its fruit.
The one thing we do know is that hot/warm weather is necessary if U.S. production is to approach the current USDA crop estimate of 13.1 million bales.
The market adage “never bet against the trend” comes to mind. I have to believe the 81-to-82 cent level will continue to hold. Nevertheless, I would get a bit nervous should the world price drop below 88 cents. Such would portend a futures drop down to 81 cents and open the way for a test of the 78-cent level.
Export sales for the week were a net 163,300 RB of Upland and 10,000 RB of Pima. Primary buyers were the cotton hungry mills in China and Turkey. Another almost 90,000 RB were sold for the 2014-15 year, with Korea being the primary buyer. This piqued the interest of many in the industry. The Koreans were also early buyers last year, being well covered in the 70-to-77 cent range before prices moved higher into the 81-to-93 cent trading range where many in the industry covered their needs.
Also, the U.S. Department of Commerce announced that the unemployment rate, as of August, had fallen to 7.3 percent.
Both of these – coupled with the weekly decline in the value of the dollar – were positive for cotton prices. With prices below 83 cents much of the week, exports should also be positive next week.
The U.S. crop is projected to be slightly lower than the current USDA estimate and could be as much as 400,000 bales lower – down to 12.7 million bales. If that happens, the December contract will again challenge the 87-cent level, basis December. Yet, with a volume of cotton soon to be available to the market, any price advance will be difficult to sustain.
The upcoming USDA supply demand report is expected to provide for a lower estimate of both world and U.S. production, including an increase in Indian production and decreases in both Chinese and Pakistani production. World ending stocks are also expected to be lowered.