When developing and executing a marketing strategy for your cotton, what you do is often the primary concern. But when you do it, can also make a big difference in profits.
According to Judy Ganes of J. Ganes Consulting, growers often have solid marketing strategies, but many don’t capitalize on windows of opportunity. Many times those opportunities are seasonal price patterns that can be used to increase profitability.
“When we are talking about developing strategies, the timing of strategies can become critical. How many times have you thought … the market is going to go a little bit higher, and suddenly the market crashes. You miss the opportunity, and you kick yourself because your timing was just off,” Ganes said. “That can make a difference in your bottom line. It is not a matter of having the right or wrong market opinion; it is just a matter of timing.”
To optimize timing, Ganes said growers need to be aware of trends that are based on weather, seasonal demand patterns, expiration dates of futures/options and other phenomena. These all play a part in market price, and growers can take advantage of them. “What we know is that there are certain historical seasonal relationships that we want you to be aware of, and they can make that difference in your bottom line – just by being cognizant of some of these seasonal factors that come into play,” Ganes said. “For example, hurricane season is a time where people tend to build a wall worrying, and the market might trade a little higher in advance because people might be thinking there is a little bit of a problem. As these factors come into play, you can improve your results based on the timing of your trading.”
March, May and July contracts are demand driven months; October and December are supply driven. But Ganes said more specific patterns exist as well. During 12 of the last 15 years, if you buy a May contract at the entry date of January 4 and exit on March 14, the average profit in two and a half months is $1,638 per contract.
If you buy a March contract on January 5 and get out 26 days later, 12 out of 15 years, the average profit has been $762. Buy a July contract on February 13, exit on March 14, and the average profit has been $1,164. “This is real money and knowing some of these seasonal patterns can improve upon your trading results,” Ganes said. “Not by changing the trade, but by changing the timing of it.”
China’s Demand Remains Static
In the near term, prices should remain stable as demand from China’s mills is fairly flat, according to a Cotton International Magazine report written by Wenlong Gong, chief of China National Cotton Information Center. Gong summarizes the current situation as follows:
China’s cotton supply won’t be tight in the short term. Commercial stock will be kept at a high level, though merchants seem to be patient enough to wait and see. Of course, they won’t turn textile mills down as long as the price is satisfactory.
Demand from textile mills could decrease. The wait-and-see psychology of textile mills is likely to grow stronger. NCMMS survey shows that the raw cotton inventory of textile mills had decreased to 46.5 days at the end of February, down 6.5 days from January. It should be noted that 63% of textile mills have the intention to purchase cotton in near term, down 16% from January. Meanwhile, 26% of textile mills have the wait-and-see psychology, up 12% from January. The reasons are as follows: first, some mills stopped cotton purchasing during the Spring Festival; second, the policy of bale-to-bale bundling sales of domestic cotton and cotton import quota has attracted the attention of textile mills.
For the near future, price will probably remain firm in the international market. Besides the influence of impending cotton import quota of China, two others factors are also important: First, resistance against the U.S. cotton export sales is weakening. Relevant data shows that Indian cotton export has reached 680,000 tons as of early March, which accounts for two-thirds of its total export estimate in the 2006/07 marketing year. As a result, the price of Indian cotton is rising, which becomes a support to the U.S. cotton price.
Second, the speculative long positions are increasing. Corn and soybean prices are in a bullish trend since the end of 2006. As an agricultural product, cotton is expected to be a target of hedge funds. According to the Commodity Futures Trading Commission, the open interest of cotton increased to 129,000 contracts on February 29, 2009 from the previous 101,000 contracts on September 5, 2006.