facebook_pixel

“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: Cotton Makes a Hard Landing

September 15, 2017

Following USDA’s September numbers, December cotton seems to have landed back in the 69-cent, pre-Harvey area.

Market Analysis

USDA Spins Market with Record Supply-to-Use Ratio

September 15, 2017

Hurricanes were but a mere hiccup for the world and U.S. crops. Instead, USDA spun some record-setting numbers that left the market dizzy.

Market Analysis

Shurley: Storms and Other Unknowns for September

September 1, 2017

September could be interesting. Loss evaluation from Harvey will still be underway, and all eyes are watching Irma. How will it all impact USDA’s September report…if at all?

Market Analysis

Hurricane Harvey Leaves Several Market Scenarios

September 1, 2017

Following Hurricane Harvey’s rampage through East and Coastal Texas, cotton growers face several possible outcomes based on the level of damage to their fields.

Market Analysis

Market Watching for Harvey’s Impact on U.S. Crop

August 25, 2017

Hurricane Harvey blew prices to triple digit gains on the week. Now, the market will assess crop damage to see if the storm blew up crop projections as well.

Market Analysis

Was USDA Right? U.S. Crop Looking Bigger.

August 18, 2017

The U.S. crop is signaling that it is getting bigger. With nothing more than a good fall, the crop could climb as much as a million bales more than USDA’s August surprise estimate.

don shurley
Market Analysis

Shurley: So Much for 18 Million Bales and Higher Prices

August 14, 2017

If USDA’s September numbers still validate a 20+ million bale crop, prices could slide. If not, the 68-70 cent level – or better – should hold.

Around The Gin
Product News

Americot Adds Three to Regional Sales Force

September 20, 2017

Americot, Inc. has added three new regional representatives to the company’s sales force.

Product News

Enlist One Herbicide Added to Enlist System

September 13, 2017

Dow AgroSciences adds a straight-goods 2,4-D choline herbicide for additional tank-mix flexibility in Enlist crops.

Product News

Elevore Herbicide Registered for Burndown Use

August 30, 2017

Dow AgroSciences’ Elevore herbicide has received federal registration for use in fall and spring burndown programs for cotton, soybeans and corn.

Product News

Stoneville Legacy Club Honors Charter Members

August 24, 2017

The new Stoneville Legacy Club honored 129 growers who recorded average yields of 1,794 lbs/A or higher on at least 20 acres with Stoneville cotton varieties.

Product News

Improved Bollworm Management Expected in 2018

August 23, 2017

Southeast Texas cotton farmers should have new tools available in 2018 to better manage bollworms and other potentially damaging pests.

Product News

Maximizer Club Honors Top FiberMax Dryland Growers

August 17, 2017

The FiberMax Maximizer Club honored 121 growers who yielded at least 1,000 lb/A on dryland acres with FiberMax varieties in 2016.

Product News

Monsanto, Valent Expand Roundup Ready PLUS Partnership

August 7, 2017

Monsanto and Valent U.S.A. are expanding their crop protection partnership for the 2018 Roundup Ready PLUS Crop Management Solutions platform.

Product News

New Broadleaf Burndown Option Coming from Dow AgroSciences

July 31, 2017

A new burndown option for tough broadleaf weeds has shown excellent promise in trials across the Mid-South and Midwest.

Latest News
Market Analysis

USDA Spins Market with Record Supply-to-Use Ratio

September 15, 2017

Hurricanes were but a mere hiccup for the world and U.S. crops. Instead, USDA spun some record-setting numbers that left the market dizzy.

Market Analysis

Shurley: Cotton Makes a Hard Landing

September 15, 2017

Following USDA’s September numbers, December cotton seems to have landed back in the 69-cent, pre-Harvey area.

Market Analysis

Higher Prices Holding as Winds Keep Blowing

September 10, 2017

An ill wind is blowing amidst the chaotic cotton trading wrought by back to back hurricanes slamming into two of the country’s major cotton producing regions. But which way does the wind blow?

Market Analysis

Post Harvey, 75 Cents Back in Cotton’s Sights

September 2, 2017

It remains to be seen if the greater loss from Harvey will be to cotton quantity or quality. But it likely means a wider trading range, with 75 cents now possible.

Market Analysis

Shurley: Storms and Other Unknowns for September

September 1, 2017

September could be interesting. Loss evaluation from Harvey will still be underway, and all eyes are watching Irma. How will it all impact USDA’s September report…if at all?

Market Analysis

Hurricane Harvey Leaves Several Market Scenarios

September 1, 2017

Following Hurricane Harvey’s rampage through East and Coastal Texas, cotton growers face several possible outcomes based on the level of damage to their fields.

Market Analysis

Market Watching for Harvey’s Impact on U.S. Crop

August 25, 2017

Hurricane Harvey blew prices to triple digit gains on the week. Now, the market will assess crop damage to see if the storm blew up crop projections as well.

Market Analysis

Was USDA Right? U.S. Crop Looking Bigger.

August 18, 2017

The U.S. crop is signaling that it is getting bigger. With nothing more than a good fall, the crop could climb as much as a million bales more than USDA’s August surprise estimate.

Market Analysis

Shurley: So Much for 18 Million Bales and Higher Prices

August 14, 2017

If USDA’s September numbers still validate a 20+ million bale crop, prices could slide. If not, the 68-70 cent level – or better – should hold.

Market Analysis

USDA Report Stuns Market. Now, Wait for Reality.

August 14, 2017

USDA stunned the market with its August estimate of U.S. cotton production. But remember – history has shown consistent deviation between mid-summer estimates and final harvest realities.

Market Analysis

Production, Weather Woes Boosting Market

August 4, 2017

Mother Nature’s recent Texas outburst was rough on cotton fields. But it was enough to boost prices back into the 70s.

Market Analysis

Technically Speaking, Pay Attention to Fundamentals

July 28, 2017

With prices holding in a three-cent range, it’s likely time to pay attention to what the market fundamentals and technicals are telling us.

Market Analysis

December Futures Prices? Ask Mother Nature.

July 23, 2017

Opinions differ on where December futures prices may go. But there’s no doubt that Mother Nature holds the key to forthcoming price activity.

Market Analysis

With Market Oversold, Is Bullish Return Near?

July 14, 2017

The cotton invert continues, as both the U.S. and Australian crops are oversold.

Market Analysis

Shurley: Prices Continue to Flounder in Lower Range

July 14, 2017

The July USDA crop production and supply and demand estimates report was not bad, but prices continue to show no improvement.