facebook_pixel

Sleepy Market Hiding Potential Volatility

The Dog Days of August are upon us, except it is cotton ginning weather. Nevertheless, cotton trading remains locked in a rather wide ten cent trading channel, but is actively trading only a four cent band around 63 cents – 61 to 65 cents, that is. Further refining, the most popular trading territory seems to be the 150 point range between 63.00 and 64.50.

In other words, maybe we are being lulled to sleep.

Yet, it is not August, the crop size remains much undefined, and demand issues loom in the background – bullish demand issues, not bearish ones. However, volatility issues are still very much behind one of the trading doors and can pop out at any time. Thus, don’t get caught sleeping. A close above 65 cents could be the beginning of a two to three cent short covering rally.

The fundamentals, changing daily, are really still waiting on more information from China, or more specifically, a clearer understanding of just what actions China will take. The Chinese market remains the world’s price discovery market. Any price rally in China is followed by a similar rally in New York, and declines in China are almost always followed by a drop in New York. The most likely avenue of price activity in the coming month will be more of the same.

Weather has been a primary factor in the news, as the recent rainy period was costly to growers not only in terms of yield, but more importantly in terms of quality. The pre-rain Strict Middling’s (SM) turned to Strict Low Middling’s (SLM). The increased volume of SLMs has basis to widen, along with removing those lots from the most desired cottons. SM and M lots continue to demand a solid premium, principally those measuring 1-1/8 inch or better, but they are becoming few and far between.

Open sunny weather forecast for the next 7 to 10 days over most of the Cotton Belt – except for the eastern edge of the High Plains and the western edge of the Southeast – will allow harvesting to get to full swing. However, it is doubtful that the open skies will bring back but very few of the SMs.

With China awash in cotton and portending a policy that has most of the world cotton industry guessing as to its intentions (and on edge as well), world consumption is suggesting it may be an important variable in the 2014-15 price equation just yet. Recall the USDA forecast of a five million bale increase in world consumption. Most of this increase will have to come from the Chinese reserve stocks, Central Asia and the U.S.

Central Asia is behind the eight ball, in that more and more firms are refusing to use that cotton due to abusive child labor policies. Too, it does appear that China is slowing its imports of yarn, implying the use of more domestic strategic stocks.

However, Chinese mills continue to be slow in taking up domestic cotton, and the Chinese new crop continues to come into the textile pipeline at a historical slow pace due to two problems. First, weather has slowed the harvest dramatically. And, of more recent concern, has been the refusal of most of the Chinese private growers (non-military/central/state farms) to sell new crop, opting instead to store the crop loose in sheds, homes and anywhere they can. This has created a bit of havoc for the mills as, when they can get such cotton, it has gained moisture, yellowed and become further contaminated.

All of these events heighten the need for high quality imports that the central government is attempting to prevent from coming into the country.

Cotton exports sales for the week were the lowest in my memory for this time of the year. While sales were expected to be slow, net sales were only 7,000 RB of Upland, or almost none. Pima sales were only 600 RB.

This speaks volumes of the near total confusion throughout the cotton world as to the intentions of the Chinese government. If they persist with their announced statement that they do not care how low prices fall, then that picture may well be framed and the mid-50s or lower are possible. However, I continue to feel that in an effort to maintain quality textile production, if nothing else, the Chinese government will eventually allow the world’s free market cotton economy to function without all of the limitations they have imposed.

The trading channel has not been violated. Until and unless it does, the 61 to 62 cent support level gets stronger and stronger. If it is not violated within the next 45 days, then we should be home free.

Topics: ,

Leave a Reply

Market Analysis Stories
Market Analysis

Cotton Prices Settle, Poised to Climb Again

February 16, 2018

The market’s downside move appears to be over, ending a three-week downturn.

Market Analysis

Cotton Futures Nudge Higher, Despite Forecast for Rising U.S. Sowings

February 13, 2018

Cotton futures nudged higher, despite a much-watched survey on U.S. sowings showing a seven-year high, as the estimate came in

Market Analysis

Still Optimistic, but Fundamentals Do Rule the Market

February 3, 2018

Last week’s price correction was overdue, yet the market is still positive. But it’s best to remember that the simple fundamentals of supply and demand do rule the day.

Market Analysis

“Here We Go Again” as Market Preps Another Run

January 26, 2018

The price breakout above 80 cents continues to build its base in the very low 80s as it prepares for its next challenge to the 85 cent level.

OA Cleveland
Market Analysis

Could Quality Shortage Push Cotton to a Dollar?

January 19, 2018

Cotton’s roller coaster price trip is on, and it’s really just beginning. The steep incline is in front of us.

Market Analysis

Shurley: Things to Consider as Prices Climb

January 19, 2018

The reasons for better prices seem fairly obvious, but the strength of the current uptrend has been surprising. Looking ahead, growers need to keep certain factors in mind.

Market Analysis

Cleveland: The Bull Will Continue Charging

January 12, 2018

Multiple market factors are at work, with demand continuing to lead the way to higher prices. That means the bull market will keep charging ahead.

Around The Gin
Product News

Bayer Shares the Risk with Cotton Farmers

January 26, 2018

Bayer offers replant, crop loss and yield protection to growers who plant FiberMax and Stoneville cotton seed.

Product News

Americot Adds New Sales Support in GA, KS and TX

January 23, 2018

Americot has expanded its sales support team in Georgia, Kansas and the Rolling Plains of Texas.

Product News

Indigo Offers Premium for Indigo Cotton Production

January 9, 2018

Indigo Ag has announced a new program that offers significant price premiums for U.S. cotton growers who contract to grow Indigo Cotton.

Product News

New Bayer Varieties Focus on High Yield, Adaptability

January 5, 2018

Bayer releases five new FiberMax and Stoneville varieties for introduction in 2018.

Product News

New PhytoGen TRiO Guards Cottonseed Investment

January 3, 2018

New PhytoGen TRiO seed treatment helps provide early season protection for young cottonseed from diseases, insects and nematodes.

Product News

Americot Adds Seven to Sales, Research Teams

December 20, 2017

Americot has added seven new sales and research associates to the company’s staff across the Cotton Belt.

Product News

Seven New Varieties in Deltapine Class of 18

December 11, 2017

Seven new varieties – including five Bollgard 3 XtendFlex offerings – join the Deltapine product lineup as the Class of 18.

Product News

Special Roundup Ready PLUS Incentives for Arkansas

December 7, 2017

Monsanto is offering a special Roundup Ready PLUS Crop Management Solutions platform in Arkansas for 2018 for growers planting XtendFlex cotton and Roundup Ready 2 Xtend soybean varieties.

Latest News
Market Analysis

Cotton Prices Settle, Poised to Climb Again

February 16, 2018

The market’s downside move appears to be over, ending a three-week downturn.

Market Analysis

Cotton Futures Nudge Higher, Despite Forecast for Rising U.S. Sowings

February 13, 2018

Cotton futures nudged higher, despite a much-watched survey on U.S. sowings showing a seven-year high, as the estimate came in

Market Analysis

NCC: Multiple Factors Offer Mixed Signals for Cotton

February 11, 2018

According to NCC economists, a few key factors will shape the U.S. cotton industry’s 2018 economic outlook.

Market Analysis

Talking Curveballs, Credibility and Carryovers

February 9, 2018

The February WASDE report served up a curve ball that caught the industry off guard. For the sake of USDA’s reputation, I hope they are correct.

Market Analysis

Still Optimistic, but Fundamentals Do Rule the Market

February 3, 2018

Last week’s price correction was overdue, yet the market is still positive. But it’s best to remember that the simple fundamentals of supply and demand do rule the day.

Market Analysis

“Here We Go Again” as Market Preps Another Run

January 26, 2018

The price breakout above 80 cents continues to build its base in the very low 80s as it prepares for its next challenge to the 85 cent level.

Market Analysis

Could Quality Shortage Push Cotton to a Dollar?

January 19, 2018

Cotton’s roller coaster price trip is on, and it’s really just beginning. The steep incline is in front of us.

Market Analysis

Shurley: Things to Consider as Prices Climb

January 19, 2018

The reasons for better prices seem fairly obvious, but the strength of the current uptrend has been surprising. Looking ahead, growers need to keep certain factors in mind.

Market Analysis

Cleveland: The Bull Will Continue Charging

January 12, 2018

Multiple market factors are at work, with demand continuing to lead the way to higher prices. That means the bull market will keep charging ahead.

Market Analysis

Cleveland: Don’t Ignore the Gift Horse. Feed the Market!

January 7, 2018

Don’t get caught looking a gift horse in the mouth. Cotton prices are at a profitable level for growers, and the market is asking to be fed.

Market Analysis

Shurley: New Year Cotton Policy Update

January 5, 2018

Recent legislative action in Congress could potentially bring cotton back under Title I commodity protection. Dr. Don Shurley explains the details.

Market Analysis

Shurley: December Report Seals the Deal

December 19, 2017

Based on the December USDA Crop Production numbers, any notion of this 2017 crop getting below 21 million bales seems unlikely at this point.

Market Analysis

It’s a Wonderful Day in Cotton’s Neighborhood

December 15, 2017

With apologies to Mr. Rogers…it’s a wonderful day in the neighborhood, and the cotton market has been mine.

Market Analysis

With Prices Rallying, It’s Time for “Significant Action”

December 8, 2017

The long-awaited rally above 70 cents appeared to mature this week. For those not already priced at 75 cents, it could be time to take significant action.

Market Analysis

Prices Push Above 70 Cents as Demand Remains High

December 2, 2017

Driven by tightening world stocks and led by an ever-increasing world consumption, cotton prices continue to move higher.