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Late Week Fireworks Could Signal Something Bullish for Cotton

Round and round and round she goes… Where she stop no one knows. The circus crier could have found employment in the cotton market at week’s end as the market, after being so very dull for two weeks, woke Friday to fireworks and 100-200 point advances were the order of the day.

To be fair, the market had been very dull for at least two weeks, some say two months.  Nevertheless, we knew sooner or later it would burst out of its near nine month ten cent trading range, and its five month six cent even tighter range. December is hovering around the 67 cent mark, but still faces stiff resistance in the 67-68 cent area. It will take a close above 68.50 to get the funds interested in cotton. The support is still down at 61-62 cents, but it is the top side that continues to get the most attention. The trading range continues, but the market is exhibiting nervousness about its long-time tenure in this narrow six cent trading range between 62 and 68 cents. Additionally export sales continue to grow, and week after week, international mills are requesting immediate delivery of cotton. This market is pleading to go up, but Mother Nature must first display a bit of her stormy and seemingly unkind spirit.

U.S. export shipments and sales have now climbed about 11.5 million bales. This is 700,000 bales above the current USDA estimate of actual exports of only 10.7 million. Thus, the issue is whether exports will exceed 11.2 million bales. The pace needed to climb above that level only needs to average 200,000 bales per week during the remaining five plus reporting weeks. Either way one slices it, U.S. carryover stocks are headed below the magic 4.0 million bale level.  Carryover stocks will either be 3.8 or 3.9 million bales, and as has been previously discussed, any carryover number with a three as the beginning number gets the bullish juices flowing within the speculative fund community. Further, the pure fundamentalists raise an eyebrow at that.

This week’s June 30 plantings report is now buzzing around the entire industry. The non-serious forecasters have the acreage at 9.7 million acres and higher. One may wonder on what planet they live. Yet, others may wonder on what planet I live for I am of the opinion that acreage will be below 9.0 million acres and possibly as low as 8.7 million. Regardless, I am reasonably sure there are no more than 8.7 million acres of cotton standing today. Texas plantings are pegged at only 5.3 million acres as all the major crop districts lost plantings to wet weather.

The Indian monsoon continues to expand, as is normal. However, most of the moisture is being deposited along the coastlines and not well within the reaches of the country where the crops are produced. Cotton land is being seeded with dry beans in some cases as forecast and actual rainfall totals continue to point to a much weaker than normal monsoon. The addition of most welcomed rains would bring some land back to cotton, but time is drawing near. Thus, given the problems associated with the Indian, Chinese and U.S. crops, the market could finally  be willing to accept that world production numbers are going to be lower than what had been earlier forecast.

Seventy cents looks better on this market, but there continues to be the potential for a large U.S. crop. As has been stated a number of times, another round of hedging could be done now that the December contract is above 67 cents.  In fact, as the market nears its weekly close, the potential for a 70 cent trade looms large. Yet, do not get caught holding the bag. It is time for some pricing.

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