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It Bears Repeating – Price New Crop Now!

It Bears Repeating – Price New Crop Now!

If you like the price enough to plant it, then like the price enough to sell some of it. If you like the price enough to plant it, then like the price enough to sell some of it.

December futures are expected to move 10-15 cents lower. December futures are expected to move 10-15 cents lower.

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Yes, that was duplicated. Most likely, I will even repeat it several more times. Yet, new crop prices are in the upper one third of the historical price range, and 2017 plantings are just about to take every seed the seed companies have.

Growers should be 60% priced on new crop. If you do not want to fix the price outright in either futures or with your mill/merchant/coop/agent, then buy puts as close to at-the-money as you can stand. In fact, my advice is to buy puts to cover 100% of your expected crop. However, you are still advised to fix price 60% of your expected production

Old crop prices defended the 78 cent futures level all week in anticipation of the release of the March USDA supply demand report. The report was generally as expected and drew little market attention, despite some major adjustments. Thus, the market is now set to stage its defense of 78 cents and attempt to push toward 80 cents and higher, basis the May contract.

Fundamentals may not seem to merit a push to 80 cents and above in old crop contract months. Yet, as I have stated before, the market is trading the imbalance in on-call sales versus on-call purchases. This imbalance continues to grow and is only adding fuel to the fire. The most recent report seemed to cool the market, but my suspicion is that it threw gasoline on the fire.

Total old crop on-call sales declined only 324 contracts and are now 80,094. This means that the price of some 8.1 million bales must be fixed on the May or July futures contract between now and mid-June. Too, the ratio of sales to purchases has now risen above 15 to 1 – i.e., the idea of gasoline added to the fire.

It is tempting to say the market is not even trading cotton, rather just the imbalance in call sales versus call purchases. However, the weekly export sales report was the big news this week, not the aforementioned March supply demand report. Some 22 countries – an unusually large number – were in the market for U.S. cotton this week.

Export sales, over 500,000 bales in each of the prior two weeks, came in for the third week at half a million bales. How can that be, one might ask?  Net upland sales totaled 248,900 RB. Pima sales were 14,100 RB. Therefore, current marketing year sales were 263,000 RB. However, combined upland and Pima sales for the 2017-18 marketing year were 218,100 RB, making total sales for the week 481,100 RB (nearly half a million).

In actual numbers, more than 1.5 million bales of U.S. cotton have been sold in the past three weeks, and at the very highest price levels of the year. Too, the demand is evident. Weekly export shipments jumped above 500,000 bales as well. Upland shipments were a yearly high of 529,000 RB, with Pima shipments adding another 15,100 RB. Thus, the demand for the high quality 2016 U.S. crop remains strong, and the international price for this high quality crop is still a bargain for world mills.

USDA increased its estimate of the 2016 U.S. crop to 17.2 million, up 300,000 bales. They did get serious about exports, increasing its estimate 500,000 bales up to 13.2 million bales and lowering carryover 300,000 bales to 4.5 million. Look for exports to eventually climb to 13.7 million and U.S. ending stocks to drop to 3.8-4.0 million bales. The Chinese market, still claimed by many to slow its purchases of U.S. cotton, will likely find it necessary to purchase high quality U.S. upland cotton to mix with the lower quality National Reserve stocks now being offered in order to achieve the necessary yarn quality required by weavers.

USDA increased its estimate of world carryover from 89.9 to 90.5 million bales, up 600,000 bales. World production was raised some 300,000 bales – all essentially in the U.S. – and consumption was lowered 100,000 bales. Essentially, there were not any production or consumption changes across the major cotton economies.

The cotton bull is striding to climb the worry wall. There is very limited speculative profit taking at this point. Price activity will continue to ride an upside bias.

Give a gift of cotton today.