Old Crop Prices Remain Volatile; Weather Holds the Key for New Crop

The New York spot contract scared the 52-week high of 93.75 cents in last Friday’s trading, as May futures traded to 93.60 cents in the morning session. While demand at 90 cents remains reasonably consistent, it is the large volume of unfixed mill call sales that underlie market strength.

I stated some time ago that mills were in position to get burned, and the fire is only coming closer. They have just over two weeks left in fixation trading on the May contract, and then only some seven/eight weeks of trading on the July. Additionally, while mills have had the ability to roll positions forward, they essentially must fix all contracts by early June. Thus, this will be their last time with the option of rolling contracts to a forward month, and the fire is already burning some of them.

The market is looking to move above 94 cents, then jump to 96 cents, and possibly 98 cents. Yet, I would not hold my breath looking for 98 cents. Do that, and one is likely to awaken choking on 86 cent cotton. As to how much the new crop December might tag along with the May contract, my guess would be no more than 80.50-81.00 cents. The new crop will be led by weather developments, not old crop prices.

Others suggest it is the Chinese policy that holds the answer for the December contract. While the Chinese will likely attempt to discharge an inordinate amount of low quality cotton, that action should not act as any significant drag on market prices.

I am fully of the opinion that weather holds all the aces and face cards to determine the price level of the December contract. In the absence of very timely rains throughout Texas during the spring and summer – particularly in the High Plains and Rolling Plains – then the December contract will move higher. However, for now that remains a weather play. There is an increasing belief that the new crop December is undervalued at 80 cents, and it may be. However, only Mother Nature’s moisture – or lack thereof – holds the key.

As futures have moved higher, so has open interest – an indication that speculative money is coming in on the long side of the market. This will likely continue to push the market higher. Yet, be prepared to see a sharp selloff. I am very much of the opinion it will occur within the next five to six weeks. The real question – and the one I cannot answer – is “Will the selloff occur at 96-98 cents and drop to 86-88 cents, or will it come at 94-95 cents and drop to that same 86-88 cents?” That is, once the bulk of the mills fixations are in, the speculative funds will then take their profits, and the market will drop like a lead balloon.

Net export sales during the 90 cent week totaled 50,800 RB of Upland for current year delivery, 4,000 RB of Pima and 135,900 RB of Upland for 2014-15 delivery. Weekly shipments were a very strong 345,000 RB (329,000 RB Upland and 16,000 Pima). With spring now officially in the air, weekly shipments should continue to average above 300,000 RB. Total commitments at 91 percent of the USDA export estimate of 10.7 million bales are in line with the historical average of 93 percent for this time of year.

Higher prices are in the air for old crop, but be prepared for a very volatile market. New crop has a very, very heavy 80-82 cent cap on its head, at least until later in the spring.

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.