Old Crop Prices Remain Bullish; New Crop Shaping Up as Weather Market

Cotton prices held well above the 90-cent level, basis old crop all week. The new crop December contract seems to have its teeth sunk into 81 cents as it continues its trek to break above the 82-cent resistance level and push for 85 cents. Exports were stronger than expected last week and helped the market find a sliver of good fundamental news.

Prices, while moving above last week’s, continued to be extremely volatile and will likely remain so. Just as I had applauded the market’s ability to reduce the spread between the old crop July contract and the new crop December price, this week’s action saw the spread widen again, settling the week above eleven cents. This current spread tends to add to the nervousness of July longs, as cotton delivered on the July contract (if such were possible today) would immediately lose that same eleven cents in value, given that December is trading about eleven cents below the July contract.

Nevertheless, the unseasonably high level of unfixed on-call sales to textile mills remains as a vigorous bullish fundamental. Volatility will remain as the primary event in the market as prices attempt to move higher. Yet, cotton demand will suffer should prices move higher.

The discussion regarding July delivery may seem premature since the May delivery has yet to begin. However, as July is the final month of the old crop contracts, all on-call mills sale fixations (mills buying futures) must be completed by that time. As the market enters the May delivery period, it does so with the trader’s knowledge that if mills do not fix their price on the May contract, then they must fix on the July contract. They can no longer roll to the next contract month. Time has run out.

While this will play out from mid-June into July, merchants and cooperatives are now positioning themselves to deliver on the May contract if need be and/or to deliver cotton against the July contract. Cotton delivered against the May contract will likely hold its value until mid-to-late-June. However, as noted, the minute the July contract expires, cotton that was delivered on July contract will lose the amount of the price spread between July and December contracts.

Market purists could take issue with that comment, and rightfully so. However, it is effectively correct, since pure/perfect competition exists only in theory.

Certificated stocks are increasing almost every day, as is the “awaiting review” category. Merchants and cooperatives are certificating cotton in order to deliver against the May contract or, if necessary, against the July contract. After all, the futures market offers a higher price than either the domestic or export market, even for quality cotton.

One concern – limited as it is – is the certification of a large block of Arizona cotton which is moving to certification storage in Dallas. The industry refers to this as cotton “out of location,” since the Arizona crop moves to the export market from a West Coast shipping point. That cotton must now be moved from Dallas back to the West Coast for delivery – an inefficient and somewhat costly situation, since anyone taking delivery of this cotton will find it expensive to move it back to the normal trading location. This will offset some of the bullishness associated with long positions and also potentially add tremendous volatility to the market.

Year to date, the pace of U.S. exports measured as a percentage of shipments to total exports has averaged 93 percent, compared to 98 percent on average. The difference is negligible and not suggestive that exports will not reach the USDA estimate. Recent weekly shipments have actually been rather strong.

The U.S. drought continues to add to the value of the 2014 crop. Yet, as discussed last week, the Southwest still has time to receive moisture.

Other new crop bullishness this week was associated with the intentions and actions of Chinese growers. Planting has been delayed there as freezing rain continues to spread across the area. Additionally, since the government has not announced its new crop price support system, many now feel that cotton prices will only be lightly supported by Beijing. This is consistent with the message the government has been announcing for over a year. As a consequence, Chinese grower intentions appear to have been scaled back. The current thought is that planting will be some 22 to 25 percent lower than last year.

Topics:

Leave a Reply

Market Analysis Stories
Market Analysis

Prices Hold as U.S. Quality Cotton Moves to Market

December 2, 2016

U.S. crop quality is essentially the highest on record. While mills may be facing potentially higher prices, they are getting a bargain on their U.S. purchases.

Market Analysis

Market Set for Shift to March Contract

November 21, 2016

The market is expected to rally higher early in the week as shorts buy their way out. Grower prices will then be based on the March contract, as December will be its expiry period.

Market Analysis

Watch for Volatility as December Contract Period Ends

November 4, 2016

There are only a few trading days left before March becomes the lead spot month. The best remaining pricing opportunity for growers should be within this time frame, which could be active and volatile.

Market Analysis

Potential Supply Squeeze Could Push Market Higher

October 31, 2016

With December first notice day only three weeks away, mill buying and other potential squeeze factors could push the December contract to 75 cents and beyond.

Market Analysis

Cleveland: Prices Healthier; China’s Buying

October 21, 2016

After jumping higher on the heels of a bullish world supply demand report, the surge in cotton prices was halted at the 72 cent resistance level. But China is back in buying mode, snapping up nearly 200,000 bales.

Market Analysis

Shurley on Cotton: Prices Showing Stability and Potential

October 17, 2016

Many growers want to know when and if the market will get back above 70 cents and provide options to enhance marketing positions. Several factors now in play could give them that opportunity.

Market Analysis

Cleveland: Market Weakens as Prices Begin to Slide

October 9, 2016

The market is showing signs of vulnerability, as cotton appears headed back to the mid-60s.

Around The Gin
Product News

Valent Introduces Valor EZ Herbicide for 2017

December 1, 2016

Valent has introduced Valor EZ Herbicide as a residual herbicide partner for the new next generation seed systems in cotton and soybeans.

Product News

Wearable Cotton Sensors Developed

November 29, 2016

Conductive cotton fabrics have been developed into flexible wearable sensors, creating new options for cotton textiles.

Product News

Dow AgroSciences, U.S. Farmers Disagree with Proposal to Revoke Chlorpyrifos Tolerances

November 10, 2016

Dow AgroSciences is standing by the safety of proper use of chlorpyrifos, in the face of EPA’s release of a pre-publication copy of the Notice of Data Availability related to its assessment of human health risks associated with the insecticide.

Product News

Advanced Germplasm and Traits Help Growers Thrive in Cotton

November 7, 2016

PhytoGen offers options to improve fiber quality and control weeds, helping growers to out-best their best and thrive in cotton.

Product News

EPA Sets Comment Period for Enlist Duo Label Expansion

November 2, 2016

The U.S. EPA has set a public comment period until December 1 for proposed label amendments for Enlist Duo, which would allow use on Enlist cotton and extend product use on all Enlist crops to 19 other states.

Product News

Helping Cotton Growers Be Good Neighbors

November 1, 2016

Good fences make good neighbors. But these days, on-target herbicide applications also can help make growers good neighbors.

Product News

Americot Offers New XtendFlex Cotton Varieties for 2017

October 28, 2016

In 2017, Americot will offer three new Bollgard II XtendFlex varieties and one new XtendFlex only variety to cotton growers.

Product News

Bayer Delivers Right Combinations for Performance and Profit

October 27, 2016

The extensive economic data documenting earnings from FiberMax and Stoneville varieties helps make the Bayer lineup the first stop for variety decisions.

Latest News
Market Analysis

Prices Hold as U.S. Quality Cotton Moves to Market

December 2, 2016

U.S. crop quality is essentially the highest on record. While mills may be facing potentially higher prices, they are getting a bargain on their U.S. purchases.

Market Analysis

Market Set for Shift to March Contract

November 21, 2016

The market is expected to rally higher early in the week as shorts buy their way out. Grower prices will then be based on the March contract, as December will be its expiry period.

Market Analysis

Shurley on Cotton: Closing Out 2016, First Look at 2017

November 21, 2016

The 2016 U.S. crop may still be somewhat of a question mark, but USDA’s November numbers provided clarity on a few things – the crop got smaller in some areas as expected, but still got bigger overall.

Market Analysis

Cleveland: Volatility Reinforces Market Fireworks

November 11, 2016

The cotton market continues to show extreme volatility, as mills and speculative funds attempt to fix prices before the expiry of the December contract. The same fireworks are predicted for the next two weeks.

Market Analysis

Watch for Volatility as December Contract Period Ends

November 4, 2016

There are only a few trading days left before March becomes the lead spot month. The best remaining pricing opportunity for growers should be within this time frame, which could be active and volatile.

Market Analysis

Potential Supply Squeeze Could Push Market Higher

October 31, 2016

With December first notice day only three weeks away, mill buying and other potential squeeze factors could push the December contract to 75 cents and beyond.

Market Analysis

Cleveland: Prices Healthier; China’s Buying

October 21, 2016

After jumping higher on the heels of a bullish world supply demand report, the surge in cotton prices was halted at the 72 cent resistance level. But China is back in buying mode, snapping up nearly 200,000 bales.

Market Analysis

Shurley on Cotton: Prices Showing Stability and Potential

October 17, 2016

Many growers want to know when and if the market will get back above 70 cents and provide options to enhance marketing positions. Several factors now in play could give them that opportunity.

Market Analysis

Cleveland: Market Weakens as Prices Begin to Slide

October 9, 2016

The market is showing signs of vulnerability, as cotton appears headed back to the mid-60s.

Market Analysis

Cleveland: What Goes Up, Must Readjust

September 30, 2016

Last week’s higher prices limited export sales, and prices had to move lower this week, back down to mill offers.

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.