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

Cleveland: Bullish Reports, Bearish Responses

February 7, 2016

Absence of demand for cotton, among other factors, is sending mixed signals to the market.

Market Analysis

Shurley on Cotton: Prices Still Low, but Find Stability

January 25, 2016

After recently threatening the 60-61 cent range, prices now seem to have found a little support and – dare we say – upward momentum.

Market Analysis

Cleveland: Market Yawns as It Closely Watches China

January 18, 2016

Despite a 2.0 million bale reduction in world production and consumption, the market yawned and moved lower, all while watching for signs of a potential dump of low grade stocks by China.

Market Analysis

Shurley on Cotton: Looking Back at 2015 and Ahead to 2016

January 13, 2016

The New Year has not started off well for cotton. It is concerning, but this recent decline is likely short-term.

OA Cleveland
Market Analysis

Cleveland: Stagnant Prices and Demand Are Frustrating

January 8, 2016

The cotton market continues to take it on the chin, as prices go nowhere and demand for cotton remains low.

don shurley
Market Analysis

Shurley on Cotton: Ending the Year with a Positive Outlook

December 22, 2015

In spite of the challenges in 2015, it’s good to remember that the marketing year is less than half over. There may yet be better opportunities down the road.

OA Cleveland
Market Analysis

Cleveland: Low Demand Maintains Status Quo

December 21, 2015

Despite what should be positive indicators for cotton, the lingering loss of market share has simply stripped demand from the market for now.

Around The Gin
Product News

New FieldView Drive Provides Real Time Field Data Transfer

January 26, 2016

The Climate Corporation is launching FieldView Drive, a device that provides seamless transfer of real time field data and mapping from planting or harvesting equipment to a mobile device.

Product News

PhytoGen Releasing First Enlist Cotton Variety for 2016

January 13, 2016

PhytoGen is releasing PHY 490 W3FE, the first cottonseed variety with the Enlist cotton trait, for the 2016 growing season.

Product News

Enlist Cotton Ready to Launch for 2016

January 6, 2016

Dow AgroSciences announced that cotton growers will have access to the Enlist cotton technology in 2016.

Product News

Bayer Announces New 2016 FiberMax and Stoneville Cotton Varieties

January 5, 2016

Bayer has announced the release of three new FiberMax and Stoneville varieties for 2016, all featuring the company’s GlyTol, LibertyLink and TwinLink technologies.

Product News

Deltapine Announces Class of 16 Varieties

December 14, 2015

Four new Bollgard II XtendFlex cotton varieties make up the recently announced Deltapine Class of 16.

Product News

PhytoGen Varieties Raise Standards for Yield and Quality

November 30, 2015

Growers propelled two PhytoGen brand varieties toward the top of the 2015 USDA Cotton Varieties Planted report.

Product News

2016 Seed Showcase – All-Tex and Dyna-Gro

November 16, 2015

Sister cottonseed companies are working to extend their footprint in 2016.

Product News

2016 Seed Showcase – CROPLAN

November 16, 2015

Up-and-coming CROPLAN relies on careful variety evaluation and placement strategies for growth.

Latest News
Market Analysis

Cleveland: Bullish Reports, Bearish Responses

February 7, 2016

Absence of demand for cotton, among other factors, is sending mixed signals to the market.

Market Analysis

Cleveland: Feeling Bearish and Blue

February 1, 2016

Loss of cotton demand and a looming move of Chinese stocks has even O.A. Cleveland saying, “This hurts.”

Market Analysis

Shurley on Cotton: Prices Still Low, but Find Stability

January 25, 2016

After recently threatening the 60-61 cent range, prices now seem to have found a little support and – dare we say – upward momentum.

Market Analysis

Cleveland: “Stuck in the Mud” Market Remains Tiresome

January 22, 2016

This market is stuck in the mud – looking more like just holding a bottom rather than turning around.

Market Analysis

Cleveland: Market Yawns as It Closely Watches China

January 18, 2016

Despite a 2.0 million bale reduction in world production and consumption, the market yawned and moved lower, all while watching for signs of a potential dump of low grade stocks by China.

Market Analysis

Shurley on Cotton: Looking Back at 2015 and Ahead to 2016

January 13, 2016

The New Year has not started off well for cotton. It is concerning, but this recent decline is likely short-term.

Market Analysis

Cleveland: Stagnant Prices and Demand Are Frustrating

January 8, 2016

The cotton market continues to take it on the chin, as prices go nowhere and demand for cotton remains low.

Market Analysis

Shurley on Cotton: Ending the Year with a Positive Outlook

December 22, 2015

In spite of the challenges in 2015, it’s good to remember that the marketing year is less than half over. There may yet be better opportunities down the road.

Market Analysis

Cleveland: Low Demand Maintains Status Quo

December 21, 2015

Despite what should be positive indicators for cotton, the lingering loss of market share has simply stripped demand from the market for now.

Market Analysis

Shurley on Cotton: Hitting a Wall at 65 Cents

December 14, 2015

The disappointing decline is likely due to some of the bullish energy running out after the nice uptick we’ve experienced recently, plus a not so encouraging export report and the December USDA production and supply/demand numbers.

Market Analysis

Cleveland: Market Rises, Then Slips, Following USDA Report

December 14, 2015

The market slipped a bit last week. But it’s set to crawl higher – backing and filling along the way, but with a positive upward bias.

Market Analysis

Market Showing Bullish Indicators

December 4, 2015

The cotton market is demonstrating signs of life again. The U.S crop will be lower, and improved U.S. exports will hone sharp points on the old bull’s horns.

Market Analysis

Shurley on Cotton: Prices Finding More Support and Momentum

November 30, 2015

Prices are finding increasing support around the 62-cent level. That may not be exciting, but firming up the floor in a very volatile and uncertain market is a good thing.

Market Analysis

Shurley on Cotton: Prices Need Something to Grab Hold Of

November 16, 2015

Cotton prices desperately need something to grab hold of to help build momentum.

Market Analysis

World Production and Carryover Drops, But No Change in Prices

November 13, 2015

The absence of almost anything resembling demand continues to keep cotton prices locked in a near 10-cent trading range.