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

Current Market Level Holding Its Ground

December 19, 2014

The market’s ability to hold its current level has overshadowed the fact that cash prices around the world have firmed a bit, signaling a stronger basis position for most growths.

Market Analysis

Cotton Market is Ripe for a Rally

December 5, 2014

Current price consolidation activity has helped uncover excellent demand. A short covering rally could possibly be triggered sooner than later.

Market Analysis

Plexus: Market Showing Signs of Life

December 5, 2014

After closing the previous 14 sessions in a very tight price band, March cotton started to break out to the upside, boosted by a firmer cash market and possible spec buying.

Market Analysis

Shurley on Cotton: New Round of Weakness Sets In

November 25, 2014

Merchants are now pricing cotton basis the March 2015 futures contract. But March futures – and all prices – are showing a new round of weakness.

Market Analysis

I Mean It This Time. The Bottom Is In.

November 24, 2014

I said it at 61/62 cents, so I’d best say it for 57 cents. The bottom is in.

Market Analysis

Plexus: Spec Movement Reveals Downside of Sideways Market

November 17, 2014

The recent trading action that pushed cotton prices into the 50s is linked to the interplay of spec short covering and spec long liquidation, which should keep the market in its current sideways trend.

Market Analysis

Shurley on Cotton: November Numbers Mostly Neutral, Prices Hold

November 11, 2014

USDA’s November crop production and supply/demand numbers are little changed from the October numbers.

Around The Gin

Product News

Deltapine Announces Class of 15 Cotton Varieties

December 16, 2014

Deltapine has announced two new high-yielding cotton varieties for its Class of 15, with several potential varieties awaiting regulatory approvals of the Bollgard II XtendFlex technologies.

Precision Technology

NORAC Hybrid Mode Receives U.S. and European Patent Approval

December 8, 2014

NORAC Systems International Inc.’s Hybrid Mode in-crop spraying feature has received patent approval in the U.S. and Europe.

Product News

Americot Adds Another High Yielder for 2015

November 24, 2014

Americot rode to success on the performance of two top varieties in 2014. For 2015, the company is adding another workhorse variety to the stable.

Product News

CROPLAN a Brand to Watch for 2015

November 21, 2014

Growers familiar with CROPLAN corn and soybean varieties in the South may want to keep an eye on the company’s cotton program, too.

Product News

Deltapine Focused on Raising the Yield Bar in 2015

November 17, 2014

No brand of cotton seed was planted on more acres in 2014 than Deltapine. So it stands to reason that the company’s variety researchers are preparing to introduce monumental changes to their seed lineup in 2015.

Product News

Growth Continues for Dyna-Gro and All-Tex

November 13, 2014

Crop Production Services has put a two brand approach in place for its Dyna-Gro and All-Tex brands of cotton. And their varieties are getting stronger each year.

Product News

PhytoGen Gaining Foothold in West Texas Market

November 12, 2014

In a year that saw PhytoGen introduce several new varieties to the Cotton Belt, an old standard once again stole the headlines as the company looks to gain more of the Southwest market.

Product News

Monsanto, Sumitomo and Valent Extend Crop Protection Partnership

November 10, 2014

Monsanto, Sumitomo Chemical and Valent U.S.A. have agreed to extend their strategic partnership in Monsanto’s Roundup Ready PLUS Crop Management Solutions platform for U.S. cotton and soybeans.

Latest News

Market Analysis

Current Market Level Holding Its Ground

December 19, 2014

The market’s ability to hold its current level has overshadowed the fact that cash prices around the world have firmed a bit, signaling a stronger basis position for most growths.

Market Analysis

Plexus: Slight Upward Bias in a Sideways Market

December 19, 2014

The market appears to be holding in a sideways to slightly higher range between 59 and 63 cents. But don’t rule out spikes to higher levels on spec short covering.

Market Analysis

Market Bumps Up on News of Smaller U.S. Crop Numbers

December 15, 2014

USDA’s lower projections for U.S. cotton production should strengthen the current global demand shift in favor of U.S. cotton. The implication is a relative higher price.

Market Analysis

Cotton Market is Ripe for a Rally

December 5, 2014

Current price consolidation activity has helped uncover excellent demand. A short covering rally could possibly be triggered sooner than later.

Market Analysis

Plexus: Market Showing Signs of Life

December 5, 2014

After closing the previous 14 sessions in a very tight price band, March cotton started to break out to the upside, boosted by a firmer cash market and possible spec buying.

Market Analysis

Shurley on Cotton: New Round of Weakness Sets In

November 25, 2014

Merchants are now pricing cotton basis the March 2015 futures contract. But March futures – and all prices – are showing a new round of weakness.

Market Analysis

I Mean It This Time. The Bottom Is In.

November 24, 2014

I said it at 61/62 cents, so I’d best say it for 57 cents. The bottom is in.

Market Analysis

Plexus: Spec Movement Reveals Downside of Sideways Market

November 17, 2014

The recent trading action that pushed cotton prices into the 50s is linked to the interplay of spec short covering and spec long liquidation, which should keep the market in its current sideways trend.

Market Analysis

Shurley on Cotton: November Numbers Mostly Neutral, Prices Hold

November 11, 2014

USDA’s November crop production and supply/demand numbers are little changed from the October numbers.

Market Analysis

Prices Still on the Path to Nowhere

November 7, 2014

Cotton prices continued their path to nowhere and are expected to continue the same back and forth trading action, reinforcing the thought that the market has bottomed out.

Market Analysis

Prices Hint That the Market Bottom Is In

November 3, 2014

Goblins may continue to haunt the cotton market past the Halloween holidays. But the market is giving more signals that the bottom is in.

Market Analysis

With WTO Brazil Settled, Cotton Casts a Wary Eye on Chinese Policy

October 31, 2014

With the conclusion of the WTO Brazil case, the U.S. cotton industry can bring a renewed focus to the challenges ahead, coming from a familiar source.

Market Analysis

Shurley on Cotton: Lackluster Week Closes on a High Note

October 27, 2014

An end of week uptick closed the market up 81 points from the previous week. But the longer-term direction is still sideways, with a range of mostly 62 to 67 cents.

Market Analysis

Same Song, Same Tune – Market Sings the Low-to-Mid 60s Blues

October 24, 2014

The same record that has been spinning for weeks is still playing. The 61 to 62 cent price resistance holds firm, attempts to close above 65 cents continue to be thwarted, and the potential for a short covering rally lingers strong in the background.

Market Analysis

Plexus: Market “Boxed In” Between Support and Resistance

October 24, 2014

Volatility dropped this week, as the market is discounting a scenario in which prices are not expected to change significantly over the coming months. Once all harvest is complete and sorted out, we may see renewed pressure on cash prices.