“Market Neutral” Report Keeps Bears at Bay – For Now

Cotton prices found support in the USDA August Supply/Demand Report, as production estimates mirrored those of state specialists first outlined at the New York ICE Cotton Forum on July 25.

While most talked about USDA increasing its estimate of the U.S. crop to 17.5 million bales – one million over last month’s estimate – traders instead focused on USDA’s other “big” numbers (demand and carryover) as they affect the price equation. As such, what most prescribed as a very bearish report has been digested by market forces and determined to be market neutral.

Most likely, the 62 cent price floor has developed enough depth to protect the price from sliding any lower. Yet, still a test down as low as 57 cents cannot be completely ruled out.

Nevertheless, three trading sessions after what was said by most to be a very bearish report, the market – basis December – was within only a very few points of the pre-release trading price. However, any momentum to the topside will likely be slowed on any approach to 66 cents and most likely will find a brick wall at the 67.50 to 68.00 cent mark.

Just as crop stress and weather deterioration will allow for the possible breach of the 67.50 resistance level, good weather will open the door for a test below 60 cents.

A bearish crop report that does not take prices lower typically speaks of a market turnaround. That is not a hard and fast rule, but it’s akin to trend analysis – Never Bet Against the Trend.

Let’s just say for now that the probability of December falling below 62 cents is very small. Supporting this are four facts: (1) the Chinese will halt the selling of Strategic Reserve stock to Chinese mills on September 1 for an unannounced period of time, (2) an increase in demand by Chinese mills, (3) the Chinese new crop movement to mills will be later than usual, and (4) the decline in Chinese futures has stalled.

U.S., Chinese and Indian prices have entered a near equilibrium.

The significant update in the Supply/Demand Report was the reduction in world ending stocks and the increase in world consumption. Additionally, with the one million bale increase in domestic production, U.S. exports were increased 500,000 bales. I would have argued for a 600,000 to 700,000 bale increase in exports, but I take the acknowledgement of increasing consumption as a major victory. The demand response to lower prices is just too much for cotton offtake not to increase even more than currently forecast by USDA.

Exports were estimated at 10.7 million bales. However, carryover stocks were increased to 5.6 million bales – an increase of 400,000 bales. Yet, if a 17.5 million bale crop is realized, prices should support an increase in U.S. exports of 200,000 bales or more, and carryover could be worked down closer to 5.2 to 5.3 million bales.

The report indicates world production was expected to total 118 million bales, with world consumption at 113 million bales. While production will again exceed consumption, the gap was 600,000 bales smaller than last month’s estimates. More importantly however, world stocks outside of China were lowered 700,000 bales.

It was these two estimates that actually gathered the most attention in the cotton trading ring. The reason (as I have become of the habit of mentioning every week) is that China will continue to be a major world importer despite their massive inventory. They need machine-harvested high quality cotton to blend with their strategic Reserve inventory of mostly medium to low grade cotton.

Recognizing this shortage of cotton outside of China, mills stepped in this week and began fixing prices for nearby delivery, as well as first quarter 2015 delivery. This brought the funds back to cotton, as they began to take the long side of the market once again.

Major changes were also made in Indian production (up 1.0 million bales) and consumption (up 500,000 bales). Both the Brazilian and Australian crops were decreased. Since both countries have been good suppliers to China, the market had to find that as supportive to prices.

The state by state breakout of production can be found online.

Most traders are more concerned than usual regarding crop progress going forward. The U.S. and a number of other countries are experiencing unusual weather problems, and the bulls have focused in on the possibility that both U.S. and world production will be measurably short of current estimates. Mother Nature has yet to play her hand in that regard. Nevertheless, it is far too early for growers to do additional price fixing.

Topics: ,

Leave a Reply

Market Analysis Stories
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.

World Cotton Use
Market Analysis

Shurley on Cotton: No Surprises in May USDA Numbers, Sideways Market Continues

May 13, 2015

USDA’s May WASDE report contains the first U.S. and World estimates for the 2015 crop year, and the numbers are about as expected – some better than expected.

Market Analysis

Market Up and Down, But Not Down and Out

May 11, 2015

With some exceptions, cotton prices spent time backing and filling the entire week. Yet the market is still attempting to flex its arms and muscles a bit to the top side.

OA Cleveland
Market Analysis

Is the Cotton Market Showing Longer Legs?

May 1, 2015

The stars seemed to align for the cotton market this past week, as prices moved to highs not seen in almost nine months.

Market Analysis

Shurley on Cotton: So Far, Prices Fail To Advance

April 28, 2015

To date, there has been little, if any, incentive for producers to do much with regard to pricing this year’s crop.

Market Analysis

Cotton Inc. Resets Risk Management Seminar in Maricopa for May 19

April 28, 2015

May 19 is the new date for Cotton Incorporated’s Cotton Price Risk Management Seminar in Maricopa, AZ.

Around The Gin
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.

Precision Technology

New Features for TeeJet Aeros 9040 Field Computer

March 18, 2015

TeeJet has added new features to its Aeros 9040 Field Computer for 2015.

Precision Technology

TeeJet Launches New DynaJet Flex Nozzle Control System

March 17, 2015

The new DynaJet Flex 7120 nozzle control system from TeeJet Technologies helps growers manage spray quality across a variety of operating speeds and application rates.

Product News

New Cheminova Chemistry to Help Control Herbicide Resistant Weeds

February 23, 2015

Cheminova plans to register pethoxamid, a new herbicide active ingredient, to help growers manage herbicide-resistant weeds.

Product News

Brake Herbicide Receives Section 18 Approvals in Six States

February 18, 2015

Brake Herbicide has received Section 18 emergency use exemptions for control of glyphosate-resistant Palmer amaranth in six cotton producing states.

Latest News
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.

Market Analysis

Plexus: Look for Tight, Long-Term Trading Range

May 22, 2015

The market has encountered both strong support and resistance to keep prices confined to narrow trading ranges for both July and December cotton.

Market Analysis

Despite Bearish Reports, Cotton Continues to Hold the Higher Ground

May 16, 2015

The cotton market continues to defy the onslaught of bearish shots across its bow.

Market Analysis

Shurley on Cotton: No Surprises in May USDA Numbers, Sideways Market Continues

May 13, 2015

USDA’s May WASDE report contains the first U.S. and World estimates for the 2015 crop year, and the numbers are about as expected – some better than expected.

Market Analysis

Market Up and Down, But Not Down and Out

May 11, 2015

With some exceptions, cotton prices spent time backing and filling the entire week. Yet the market is still attempting to flex its arms and muscles a bit to the top side.

Market Analysis

Is the Cotton Market Showing Longer Legs?

May 1, 2015

The stars seemed to align for the cotton market this past week, as prices moved to highs not seen in almost nine months.

Market Analysis

Shurley on Cotton: So Far, Prices Fail To Advance

April 28, 2015

To date, there has been little, if any, incentive for producers to do much with regard to pricing this year’s crop.

Market Analysis

Cotton Inc. Resets Risk Management Seminar in Maricopa for May 19

April 28, 2015

May 19 is the new date for Cotton Incorporated’s Cotton Price Risk Management Seminar in Maricopa, AZ.

Market Analysis

Market Bumps Upward as the Weather Watch Begins

April 27, 2015

The cotton market jumped higher this week, finding price support from the litany of pre-plant weather problems around the globe.

Market Analysis

Market Lows Remain Higher, Even With Recent Price Dip

April 20, 2015

Cotton futures gave up three weeks of gains last week as the market lost some 200 points. Yet the market continues to see higher and higher lows, which generally points to an uptrend.

Market Analysis

Shurley on Cotton: Prices Heading Toward “Testing Ground”

April 10, 2015

Now that old crop has clearly broken through 65 cent ceiling, there is belief that prices will continue to trek higher toward a new “testing ground.”

Market Analysis

Tight Supplies of Quality Cotton Poised to Drive Market Higher

April 5, 2015

A very tight quality shortage that only gets tighter will drive cotton prices higher. This market has 70 cents, basis December, written all over it.

Market Analysis

Plexus: Factors Lining Up for Price Growth

April 3, 2015

Reduced global acreage, increased mill demand and low inventories of quality cotton could help push prices into the high 60s or even low 70s over the next few months.

Market Analysis

Shurley on Cotton: USDA Planting Intentions In; Time for Market to Focus on Other Realities

March 31, 2015

The March 31 USDA Prospective Plantings report of 9.55 million cotton acres is slightly higher than most other pre-report expectations. Now, it’s time for the market to focus on other matters.