“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

Cleveland: Bulls Ride Prices into the Mid-70s

September 23, 2016

Two weeks ago, we suggested that the USDA supply demand report would be neutral and the market would drop, yet only to reverse to and jump higher. It jumped this week. Wildly higher.

Market Analysis

Bulls Feed on Cotton Trade Opportunities

September 12, 2016

Although U.S. and world crops are slightly larger than originally estimated, production difficulties in Pakistan and other countries will continue to boost world cotton trade and add support to the market.

Market Analysis

Cleveland: The Bulls Battle Back

September 6, 2016

The December contract again became the darling of the bulls, who won the week after having their backs slammed against the wall.

Market Analysis

The Dog Days of August – and Cotton – Are Upon Us

August 29, 2016

The Dog Days of August have arrived. That gives Dr. O.A. Cleveland time to reflect on the market, Egyptian cotton, and the offer of a polyester shirt.

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.

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

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.

Around The Gin
Product News

It’s a Deal: Bayer to Acquire Monsanto

September 14, 2016

Bayer and Monsanto have announced an agreement under which Bayer will acquire Monsanto for approximately $66 billion in an all-cash transaction.

Product News

How Fiber Quality Became So Valuable

September 14, 2016

Textile expert Dean Etheridge explains the meteoric rise of fiber quality on the global market.

Product News

Cotton Cultivated Website Adds Custom Weather Feature

September 1, 2016

Cotton Cultivated – Cotton Incorporated's producer information website – now features a new weather tool tailored for cotton growers.

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.

Latest News
Market Analysis

Cleveland: Bulls Ride Prices into the Mid-70s

September 23, 2016

Two weeks ago, we suggested that the USDA supply demand report would be neutral and the market would drop, yet only to reverse to and jump higher. It jumped this week. Wildly higher.

Market Analysis

Cleveland: The Bear/Bull Balance Continues

September 19, 2016

Cotton prices ended the week lower, but made gains after triple digit losses in trading that followed USDA’s September supply demand report.

Market Analysis

Shurley on Cotton: Market Unhappy with September Estimates

September 15, 2016

Whatever the market was expecting from the September WASDE report, it didn’t get. So prices reacted accordingly – down.

Market Analysis

Bulls Feed on Cotton Trade Opportunities

September 12, 2016

Although U.S. and world crops are slightly larger than originally estimated, production difficulties in Pakistan and other countries will continue to boost world cotton trade and add support to the market.

Market Analysis

Cleveland: The Bulls Battle Back

September 6, 2016

The December contract again became the darling of the bulls, who won the week after having their backs slammed against the wall.

Market Analysis

The Dog Days of August – and Cotton – Are Upon Us

August 29, 2016

The Dog Days of August have arrived. That gives Dr. O.A. Cleveland time to reflect on the market, Egyptian cotton, and the offer of a polyester shirt.

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.