I Mean It This Time. The Bottom Is In.
December cotton 2014 futures are all but history, as March became the lead month at week’s end. Much to the dismay of many funds and growers alike, the New York contract broke below the long-time 61/62 cent support level that had held since September. Yet, the money now seems to be on the 58 cent level providing enough support to keep the market from moving any lower.
I said it at 61/62 cents, so I’d best say it for 57 cents. The bottom is in.
I had long ago pegged 57 cents as the absolute low, but had been a major sponsor of the 61/62 cent level being strong enough to hold. No matter, that was just another in a long history of me incorrectly calling the market. I will not do it again…until the market opens next week.
Yes, I do believe the very long term support at 57 cents will be all the market needs to scare it higher. Both U.S. grower selling and international origin selling has moved much of the crop to merchant and mill hands. Thus, more than half of the hedging has been done for the 2014 crop.
There will be more pressure on prices. But there is no rocket powerful enough to lift prices much above current levels until the January-February time frame. However, the January seasonal rally is in front of us, as I recall the market adage to never bet against the seasonals.
With FND (first notice day) on December passing without any delivery notices, this sets up a potential market positive – higher prices (notice the absence of the world “bullish”). Again, given the hedging that has already been done, the market should be free to gradually drift higher, but the 61/62 cent level will keep pressure on prices.
The market got a boost out of China – the first boost from there in a long time. The Chinese government announced it was reducing interest rates and taking other steps to ease credit, as well as put more money in circulation. This follows on the heels of Europe and Japan taking similar action over the past month. Its importance is based on the fact that the Chinese now formally recognize that their past action had slowed economic growth to an unacceptable rate, and they now understand that they must boost manufacturing – not only cotton spinning, but most other sectors as well.
Coupled with that, the market also welcomed better news from the export market, as China was back for another week with respectable volume. There does remain a bit of concern regarding export shipments continuing to lag the five-year average. However, this recent Chinese action should help boost weekly shipments.
Net sales of cotton for the week ending November 13 totaled 172,000 RB of Upland and 10,800 RB of Pima. The break in prices following the December supply demand report stirred buyers, and this portends good numbers next week. The major importing countries were the primary buyers, with China leading the way.
As mentioned, shipments were slow, actually a marketing year low of only 67,500 RB. However, the various governments’ economic actions should allow for better shipment numbers being reflected in two weeks.
I understand that Cotton AM (Hayes White, firstname.lastname@example.org) referenced the possibility of growers buying the second of three rounds of July calls during the last week in November in support of selling physical cotton at harvest and replacing it with options. This general strategy is well advised and is in line with the very valuable price risk management seminars originated by ICE (New York Cotton Exchange) and its now-retired former President Joe O’Neill all the way back to 1986.
Those seminars have, for a decade or longer, been sponsored by Cotton Incorporated. The 2015 round of seminars are slated for Memphis, Lubbock, Maricopa and possibly other locations.