Like Poker, Cotton Market Full of Bluffs and Calls

While the old crop July contract still launches its few remaining fireworks, the December futures contract has become the lead month with respect to volume and open interest.

The December contract is attempting to consolidate its trading range around 77 cents and, for the time being, will most likely trade a very narrow five cent price range between 74.50 and 79.50 cents. This will likely hold through the first week in July when the market starts its second guessing about the July supply demand report.

Current market signals favor the bears and a market that trades in the middle 70’s most of the year. Yet, the year is only just beginning.

The past week’s roller coaster ride in July prices was about certificated stocks and short futures positions rather than about the supply and demand of cotton. That is, it was about end-of-the-year book balancing and end-of-the-game bluffs and calling the other’s hand. What developed was a total disconnect between futures price and cash price.

Merchants, faced with rising cotton prices, knew that cotton values would be lower within a week as the market transitioned from the old crop July futures to the new crop October/December futures. Since the market was inverted (today’s old crop prices are higher than next week’s new crop prices), merchants and mills both knew that cotton would be worth less within a week or so as the old marketing year ended. Thus, merchants were willing to drop the cash price (despite rising futures prices) to obtain a guaranteed sell.  If they did not, then there was an extremely high probability that the same cotton would be sold for even less.

Too, mills were ready to take the cotton at a somewhat lower price rather than wait any longer, as most mills have delayed buying to the bitter end and were running the risk of getting shut out of obtaining any quality cotton – i.e., being forced to take less desirable cotton.

Recall, the July contract was not “really” trading cotton, but rather trading who would hold the certificated stocks much like the final bluffs and calls as in the game of poker. Granted, that is extremely atypical in any futures market, but does arise somewhat at the end of a contract’s life, especially if the commodity is moving from one production year to another production year. Those fireworks are about done.

Nevertheless, the activity in July has made it very clear that mills are shopping quality machine-harvested cotton. Spinning mills have heard the mandatory request for quality products from upstream weavers and apparel manufacturers, all noting that the world consumer is now looking at cotton goods on the basis of quality and not price. The development of a large and affluent middle class throughout China, Southeast Asia and the Indian subcontinent has forced this issue.

The Northern hemisphere is rapidly moving toward a completion of planting, with the U.S. essentially concluded. As always seems to be the case, the crop just got in and is progressing well. Certainly, given the repeated moisture over the Texas plains, the U.S. crop in on track to climb above USDA’s current projection of 15.0 million bales produced.

The USDA June 30 planting report will be the next major cotton release coming from USDA. Estimated projections range from 10.7 to 11.4 million planted acres. My thoughts have been 11.1 to 11.3 million planted acres, and I will stick to that projection. However, some of the corn acreage first thought to go to cotton was switched to soybeans in the Mid-South and Southeast. But then, the excellent moisture received in the dryland area west and southwest of Lubbock could bring in unexpected acreage.

Indian plantings are generally on schedule, but possibly a bit late in total. India had been warned that the monsoon would be late, but then it received very good moisture early. Thus, it was thought that acreage would see a significant increase (and we still might). But the monsoon backed off, and now it has been delayed in the northern region. It is far too early to toss in the towel, but the situation bears watching.

U.S. export sales continue to impress as China, Southeast Asia, Turkey and others come to the plate week after week. Indonesia had cut its imports of U.S. cotton. But as it now ramps up its yarn exports to China, it has significantly increased its import purchases of U.S. cotton.

Prices should consolidate at the 77 cent level, basis December.

Topics: ,

Leave a Reply

Market Analysis Stories
don shurley
Market Analysis

Shurley on Cotton: Prices Slip Under Pressure

August 15, 2016

The sudden jump in cotton prices was recently referred to as “Christmas in July.” Well, the new wears off eventually – even for Christmas gifts.

Market Analysis

Bears Impact Market, But Long Term Still Bullish

August 22, 2016

The near term technical perspective for the cotton market has turned a bit bearish. But, the longer term outlook remains bullish.

Market Analysis

Cleveland: Feed This Hungry Cotton Market Now!

August 1, 2016

The cotton market is hungry and wants to be fed. It’s time for growers to move their price fixations up and sell it some cotton!

Market Analysis

Mother Nature Now in Charge of the Market

July 24, 2016

At this point in the crop production year, be assured that Mother Nature will still have the major say with respect to cotton prices.

Market Analysis

Cleveland: USDA Turns the Bulls Loose

July 18, 2016

Say it again: Technicals are the leading indicator of fundamentals; they kept telling us higher prices were coming.

Market Analysis

Shurley on Cotton: It’s Christmas in July!

July 13, 2016

The calendar says July. But for cotton growers, it may as well be “Merry Christmas.”

Market Analysis

Watching Bulls, Bears and Fundamentals

July 11, 2016

Fundamentals rule in the long run, but technicals provide the roadmap. Just be sure to keep an eye on the bulls and bears.

Around The Gin
Product News

ChemChina/Syngenta Deal Gets U.S. Foreign Investment Approval

August 22, 2016

ChemChina and Syngenta have received a key clearance for the proposed consolidation of the companies.

Product News

Enlist Cotton Trait Earns Full Export Approval

August 10, 2016

Cotton varieties containing Dow AgroSciences’ Enlist trait now have full export approval in key countries.

Product News

Spray Equipment Offer Helps Maximize On-Target Applications

August 3, 2016

A new spray technology equipment offer can help growers participating in Roundup Ready PLUS Crop Management Solutions upgrade their sprayers to maximize on-target applications.

Product News

EPA Allows Sale and Use of Existing Belt Inventory

August 2, 2016

The U.S. EPA’s Environmental Appeals Board has upheld an earlier decision to cancel registration for Bayer's insecticide Belt, but is allowing sales of existing stocks to growers for use.

Product News

Indigo Launches Water Efficiency Product for Cotton

July 26, 2016

Boston-based research firm Indigo has launched its first commercial product – Indigo Cotton – which helps improve the cotton plant’s water use efficiency.

Product News

Enlist Technology Provides Tolerance to Three Key Herbicides

July 13, 2016

The Enlist weed control system will give growers the ability to use three modes of action postemergence in both cotton and soybeans.

Product News

Providing Upland Varieties with Acala-like Quality

July 13, 2016

PhytoGen offers growers several upland cotton varieties with Acala-like fiber quality for added premiums and higher profitability.

Product News

PhytoGen Names Winners in Best Yielder Club Sweepstakes

June 29, 2016

A North Carolina cotton grower was named grand prize winner in the 2016 PhytoGen Best Yielder Club sweepstakes.

Latest News
Market Analysis

Bears Impact Market, But Long Term Still Bullish

August 22, 2016

The near term technical perspective for the cotton market has turned a bit bearish. But, the longer term outlook remains bullish.

Market Analysis

Shurley on Cotton: Prices Slip Under Pressure

August 15, 2016

The sudden jump in cotton prices was recently referred to as “Christmas in July.” Well, the new wears off eventually – even for Christmas gifts.

Market Analysis

Market Holds On in Face of Neutral Report

August 14, 2016

USDA’s August cotton reports were neutral-to-supportive, keeping the 70-78 cent trading range in place as the major trading channel.

Market Analysis

Market Strong, But Looking for Answers on China, India

August 5, 2016

This market has 80 cents written all over it. But it’s also calling for a closer look at reported cotton stocks in China and India.

Market Analysis

Cleveland: Feed This Hungry Cotton Market Now!

August 1, 2016

The cotton market is hungry and wants to be fed. It’s time for growers to move their price fixations up and sell it some cotton!

Market Analysis

Mother Nature Now in Charge of the Market

July 24, 2016

At this point in the crop production year, be assured that Mother Nature will still have the major say with respect to cotton prices.

Market Analysis

Cleveland: USDA Turns the Bulls Loose

July 18, 2016

Say it again: Technicals are the leading indicator of fundamentals; they kept telling us higher prices were coming.

Market Analysis

Shurley on Cotton: It’s Christmas in July!

July 13, 2016

The calendar says July. But for cotton growers, it may as well be “Merry Christmas.”

Market Analysis

Watching Bulls, Bears and Fundamentals

July 11, 2016

Fundamentals rule in the long run, but technicals provide the roadmap. Just be sure to keep an eye on the bulls and bears.

Market Analysis

Cleveland: A Fun Week of Bulls, Bears and Brexit

July 5, 2016

The cotton market experienced a fun, exciting week as trading focused on strong bullish and bearish fundamentals – and little to no impact from Brexit.

Market Analysis

Shurley: Acreage Numbers Could Challenge Range-Bound Prices

July 1, 2016

In light of the June 30 USDA acres planted numbers, it would have to be considered good news if cotton’s “range bound” prices can remain at or above 64 cents.

Market Analysis

Market Fundamentals Positive, but Not Yet Bullish

June 20, 2016

July prices are still bumping into resistance. But there are enough positive fundamentals in the market to provide a bit of bullish hope.

Market Analysis

Shurley on Cotton: Thoughts Ahead of the Acreage Report

June 16, 2016

There’s usually speculation on the June USDA Acreage number and how it might compare to the March Prospective Plantings number. So far, it's all quiet.

Market Analysis

Commodity and Mill Actions Pushing Cotton Higher

June 10, 2016

It was a pretty good week for cotton, as fund money continued to flow to all commodities, and mills began to ease their price expectations higher.

Market Analysis

Mills, Speculators and Weather Driving Cotton Prices

June 7, 2016

Mother Nature’s recent whims are driving new money into cotton, as mills come to grips with rising prices and price fixations, which fuel buying by hedge fund long speculators.