Market Roller Coaster Heads Up, But 90 Cent Cotton Still Elusive

By Jim Steadman|March 6, 2014

The cotton market recaptured most of last week’s losses, climbing back to near 89 cents in the old crop May and to 79 cents in the new crop December. Nevertheless, while bullish signals persist, scaling and holding the 90 cent barrier continues to elude the bulls.

Mill call sales continue to build under the market and appear to be little more than dry kindling looking for a reason to explode. Each passing week adds to the likelihood that mills will push the market higher as they fix prices on the outstanding call sales.

USDA may join the bulls next week with its release of the March supply demand report. As we have mentioned several times over the past three months, the industry believes USDA has overstated ending U.S. stocks by 400,000 to 500,000 bales. Data is supporting that crop size will be lowered 200,000 plus bales and that exports might be edged higher, with some suggesting that ending stocks will be lowered 500,000 bales, down to 2.5 million. USDA will be reluctant to take that path, but will base their estimates on the facts they uncover.

U.S. ending stocks, given normal weather (whatever that is), expected to move some 3 million plus bales higher during the 2014-15 marketing year. That has been paramount in new crop December futures, which are trading some 10 cents below the May/July contracts.

Fanning the bull’s fire is the growing concern that the bulk of the 50 million-plus bale Chinese Reserve is of questionable quality and was the primary reason the Reserve purchased so much, U.S., Australian and high grade Indian cotton. It is very difficult not to join forces with the old crop bulls.