“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

Little Price Movement as Market Watches Planting, China

May 2, 2016

There was scarce cotton news the market found interesting in the past week. Now, all eyes are on Mother Nature and the Chinese cotton auction for price direction.

Market Analysis

Cleveland: Chinese Program Providing Market Stability, Price Boost

April 25, 2016

Cotton prices continue to advance, thanks to stability from an unlikely source – China.

Market Analysis

Prices Tick Upward as Demand Debate Continues

April 11, 2016

Cotton prices moved higher in New York at week’s end. But all O.A. Cleveland heard about were his comments on Adidas and demand. So naturally, there’s more.

Market Analysis

Shurley on Cotton: Trying to Decipher the Numbers

April 4, 2016

Spending a little time discussing acres planted is fine for now. But it will all come down to how the weather impacts planted acres, and what happens during the growing season.

OA Cleveland
Market Analysis

Of Demand, Adidas and Planting Intentions

April 4, 2016

The market wants to make a major move. USDA says cotton acres will be will up. Yet demand remains the only game in town – everything else is window dressing.

Market Analysis

Riding Out Cotton’s Flooded Market

April 2, 2016

Joe Nicosia says better days are coming. But American cotton must persevere as China finally unloads its massive reserves.

Market Analysis

Cleveland: All Eyes on USDA Planting Intentions

March 28, 2016

As prices remain unchanged and China remains quiet, the cotton market awaits the USDA planting intentions report for possible good news.

Around The Gin
Product News

Record Yields Set by 2015 FiberMax One Ton Club

May 4, 2016

The 127 members who qualified for the FiberMax One Ton Club pushed cotton yields and quality to higher levels in 2015.

Product News

Meister Media Worldwide Website Relaunches With New Resources

April 22, 2016

Meister Media Worldwide — publisher of Cotton Grower magazine – has relaunched its corporate website, highlighting information and services available from one of agriculture’s leading media companies.

Product News

ReinCloud Promises Remote Control

April 18, 2016

New software set to combine irrigation management and data collection – all in the palm of your hand.

Product News

Search Begins for Deltapine Class of 17

April 14, 2016

Deltapine’s NPE program is nine years old, and the search for the company’s Class of 17 cotton varieties is underway.

Product News

Texas Farmer First to Plant Enlist Cotton Variety

April 11, 2016

Dean Hansen of El Campo, TX, was the first cotton grower in North America to plant the first commercially-available cottonseed with the Enlist cotton trait.

Product News

New Options for Roundup Ready PLUS Program

March 25, 2016

The Roundup Ready PLUS Crop Management Solutions program for 2016 includes a new tool for weed management and new incentives for farmers looking to fight insect pests in corn.

Product News

Greenleaf Launches easyFlow Closed Transfer System

March 24, 2016

Greenleaf Technologies has launched the company’s new easyFlow closed transfer system for the North American market.

Product News

AgLogic Launches Aldicarb Product in Georgia

March 15, 2016

Growers in Georgia will be able to use a new aldicarb pesticide in 2016 for nematode and early season pest control.

Latest News
Market Analysis

Little Price Movement as Market Watches Planting, China

May 2, 2016

There was scarce cotton news the market found interesting in the past week. Now, all eyes are on Mother Nature and the Chinese cotton auction for price direction.

Market Analysis

Cleveland: Chinese Program Providing Market Stability, Price Boost

April 25, 2016

Cotton prices continue to advance, thanks to stability from an unlikely source – China.

Market Analysis

Shurley on Cotton: Recent Events and Market Direction

April 22, 2016

Although it’s a painful time for cotton right now, there are potential positive factors on the horizon that could eventually lead to better prices.

Market Analysis

Bulls and Bears Collide in Eventful Market Week

April 18, 2016

An exciting, bullish week for cotton prices turned bearish, as prices ran ahead of demand, the Chinese announced reserve sale plans, and USDA released its April WASDE report.

Market Analysis

Prices Tick Upward as Demand Debate Continues

April 11, 2016

Cotton prices moved higher in New York at week’s end. But all O.A. Cleveland heard about were his comments on Adidas and demand. So naturally, there’s more.

Market Analysis

Shurley on Cotton: Trying to Decipher the Numbers

April 4, 2016

Spending a little time discussing acres planted is fine for now. But it will all come down to how the weather impacts planted acres, and what happens during the growing season.

Market Analysis

Of Demand, Adidas and Planting Intentions

April 4, 2016

The market wants to make a major move. USDA says cotton acres will be will up. Yet demand remains the only game in town – everything else is window dressing.

Market Analysis

Riding Out Cotton’s Flooded Market

April 2, 2016

Joe Nicosia says better days are coming. But American cotton must persevere as China finally unloads its massive reserves.

Market Analysis

Cleveland: All Eyes on USDA Planting Intentions

March 28, 2016

As prices remain unchanged and China remains quiet, the cotton market awaits the USDA planting intentions report for possible good news.

Market Analysis

China Still Sits Heavy on the Market

March 21, 2016

Chinese reserve stocks still sit as a heavy hat on cotton prices, providing little reason to break above the 59-cent price resistance.

Market Analysis

Cleveland: Quality Premiums Are Coming

March 13, 2016

The quality premium for U.S. cotton has been holding steady, but improvement is on the horizon. Hold for it.

Market Analysis

Cleveland: No Moral Victories in the Market

March 7, 2016

The cotton market is famous for giving second chances, but it also takes no prisoners. We are not talking horseshoes here.

Market Analysis

Shurley on Cotton: Prices “Lost In Space”

March 7, 2016

Much like the space family in the popular 1960s TV show “Lost in Space,” cotton, too, has been under a “meteor shower” of negative news and overall bearish market sentiment.

Market Analysis

Cotton Prices Appear Range-Bound in Near Term

February 23, 2016

Cotton prices are projected to remain range-bound in the near term due to large stocks held by China and depressed prices for all agricultural commodities.

Market Analysis

Market Still Bearish, as Prices Tick Upward

February 22, 2016

The New York March contract settled one tick above 60 cents, helping avoid the deep bearishness, but keeping technical signals weak.