facebook_pixel

78 Cent Cotton? The Opportunities are There.

With apologies to Yogi Berra, prediction is difficult, especially when it is about the future. Another way Yogi said it, “It ain’t over until it’s over.” The opportunity for the nearby cotton futures prices to top 78 cents remains strong – rather, possibly I should say the opportunities are numerous.

All of these thoughts come to mind as I view the various events surrounding the cotton market. Too, another comes to mind – Cotton is Powerful, It can Make or Break Any Man. There is a lot to celebrate, as this past week was also the 48th anniversary of The Day the Music Died.

The leading sentence in last week’s comments was “cotton prices jumped higher all week and have now seen higher closes on seven of the last eight trading days.” Now comes another week of trading, and prices were up in five of the last six trading sessions. So it seems the road to higher prices is higher production.

Economics does not support that comment. So let me ponder on my thoughts of the titanic bullishness that has captured the cotton market.

The older trading range will return – that is, 71.50 to 78.50 cents. Price activity pounded the 78 cent barrier this week and, like its previous battle, failed to beat the big door down. While the market has 11 days before March goes first notice and May becomes the spot month, we are in the very short rows for a price breakout. Yet, there will be more opportunities.

Mills are doing nothing more than kicking the can down the road and continuing to hope they can stop their hemorrhaging. I doubt they can do little more than attempt to pick some pricing points near the bottom of the price range. Yet, as they desperately try to cover the disastrous pricing decisions they have made this year, the lower end of the range will actually creep higher.

There are three events that must be viewed in any attempt to understand where the market may go:

  • First, unfixed mill on-call sales versus on-call purchases are extremely bullish. The old crop ratio is 11:1.
  • Second, the speculative managed money funds have established an all-time record investment in cotton futures.
  • Finally, open interest in cotton futures is near the all-time record set in 2008. Only the February-March 2008 time period had a higher open interest.

Three events, all screaming BULLISH at the same time and drowning out any other sound.

The current market represents manna from heaven for the speculator, and funds have experienced very profitable gains that are set up to continue into June. Thus, cotton futures trading should remain very active at least into the early summer. While the quantity of cotton still in grower hands is limited, the quantity of cotton covered by futures or option contracts remains large. Thus, grower profitability is at stake as well as mill profitability.

Yet, this is the year for the grower and speculator, and not for the mills. Mills are simply in a squeeze of their own making and should have known much, much better.

Mill on-call sales for March are 32,383 contracts versus 3,807 on-call purchases, or a very bullish near 8:1 ratio of futures contracts that must be purchased to those that must be sold. Viewing the total old crop situation (March, May and July on-call sales), the ratio climbs to near 11:1 in favor of futures buying versus futures selling. Thus, the buying pressure is not going away.

Maybe, and let’s hope the market keeps rolling. But then, as in the past, the economist comes along and spoils all your fun. Well, I don’t think I am going to spoil the fun. We have already had the fun, and we will have a little more. But for now, I think the market has shot its wad. Now, there is no major price drop coming. It is just time to slow down and catch our breath and make sure we can “hold on to what we got.”

The market is consolidating, to use a New York term. Holding on, I think, is almost guaranteed. There is plenty of bullishness in the market. The bearish factors are not really bearish as much as they are “consolidating” factors. The market will back into the lower-to-mid level of the trading range and search for new fundamentals to trade, with a bias back up to the up-end of the range.

Early in the week, the cotton market established a classical key reversal trading day. Key reversal days are unusually rare and, as such, hold great predictive power. In a rising market like this one, the requirements of a key reversal are that the current day must open higher than the prior day, it must trade higher than the prior day high and lower the prior day low, and then it must close lower than the prior day low.

That may sound easy to accomplish. But all conditions, as I said, rarely – seldom, if ever, so to speak – occur in the cotton market. Two adages of trading cotton: (1) never bet against the trend, and (2) never bet against major technicals.

In the coming few days, the mills will do the same thing they did in December. In the 11 days before first notice, mills will buy a “few” contracts, definitely fixing the price they pay for some cotton. However, most of their activity will consist of spreading – they will kick the can down the road. They will buy the March contract and sell the May contract and later be caught essentially in the same squeeze they are in now and were in back in December. Come mid-April, when the May contracts moves to first notice day, mills will buy the May and sell the July. In the meantime, they will gradually fix prices in the 71.50 to 74.00 cent range, and hopefully not end up in the same fix they are in now…and were in this past December.

How did all this come about? Months ago, mills thought they could buy cotton at 69 cents and below, so they delayed their pricing decision. They had poor advice and have failed to take advantage of price pullbacks to the lower end of the trading range. Their DNA tells them that prices are going lower. You might recognize this – the growers’ DNA is made up of higher prices.

A final word. Exports continue to explode. As I have stated for over a month, the world is hungry for the record high quality U.S. crop, and it remains the best deal on the world market, with excellent quality and a low price. We have discussed for three weeks now that both India and Pakistan have been big buyers – a market fundamental rarely seen.

The market is not in trouble at all. It is just that the 78 cent market cap is made of solid lead and is lined with the petroleum-based acid fiber polyester – one of the world’s leading pollutants, yet loved by name brand clothing manufacturers and apparel importers.

Give a gift of cotton today.

Topics: , ,

Leave a Reply

Market Analysis Stories
Market Analysis

Fluctuations and Cancellations Create Interesting Week

May 22, 2017

Despite price fluctuations and export sales cancellations over the past week, the cotton market hangs tough as U.S. planting continues.

Market Analysis

Market Holding, but Lock in Prices Now

May 15, 2017

Cotton’s recent price surge is likely not done yet. But, growers who have not priced their 2017 crop should do so soon before the market softens.

Market Analysis

High Quality Cotton Bumps Export Demand and Prices

May 2, 2017

The 2016 U.S. cotton crop produced high yields and high-quality fiber, triggering a spike in export demand and higher market prices.

Market Analysis

Cleveland: Prices Holding in Face of Softening Exports

May 1, 2017

The bulls continue to push for higher prices, but the softening of exports are starting to lay the foundation for price slippage.

white ripe cotton field ready for harvest
Market Analysis

Strong Market Support Pushes Prices Higher

April 21, 2017

Cotton prices made a run higher this past week, as export sales and inquiries continue to provide support to the market.

Market Analysis

Shurley on Cotton: Exports Continue Upward Trend

April 12, 2017

USDA’s April supply and demand estimates increased U.S. cotton exports for the 2016 crop year to 14 million bales – a surprising upward jump, but one that is certainly justified.

Market Analysis

Cleveland: Strong Exports Driving World Stocks Lower

April 10, 2017

Strong export sales and brisk shipments of U.S. cotton should continue for at least 2-4 more months, helping to lower world cotton stocks and maintain prices in the 70s.

Around The Gin
Product News

Transform Earns Section 18 Exemptions for Cotton, Sorghum

May 4, 2017

Transform WG insecticide has received Section 18 emergency use exemptions for use in cotton and sorghum in select states for the 2017 production season.

Product News

EPA Approves Monsanto’s NemaStrike Technology

May 2, 2017

The EPA has issued registration for tioxazafen, a new nematicide from Monsanto that will be branded as NemaStrike Technology for nematode control and yield protection in cotton, corn and soybeans.

Product News

Indigo Partners Launched for In-Field Technology Testing

April 25, 2017

Indigo is launching Indigo Partners, a collaboration of 25 U.S. growers and agronomic experts to test agricultural technologies – including Indigo’s microbial seed treatments – during 2017.

Product News

UPI Adds New Herbicide Products

April 14, 2017

UPI has added two new herbicides to its portfolio of high quality crop protection products for the U.S.

Product News

FiberMax One Ton Club Membership Tops 1,000

April 14, 2017

A record number of growers qualified for the FiberMax One Ton Club in 2016 with four-bale and higher yields with FiberMax varieties.

Product News

Deltapine NPE Program Kicks off Tenth Year

April 10, 2017

Nearly 200 growers will participate in the tenth season of the Deltapine New Product Evaluator (NPE) Program.

Product News

BASF Expands Dicamba Manufacturing Facility

March 22, 2017

BASF has completed a $270 million expansion of its Beaumont, TX, facility – the largest agricultural products facility investment in company history.

Product News

Topguard Terra Label Amendments for Cotton Root Rot in Texas

March 7, 2017

Texas growers now have additional preplant and post planting options for using Topguard Terra to control cotton root rot.

Latest News
Market Analysis

Fluctuations and Cancellations Create Interesting Week

May 22, 2017

Despite price fluctuations and export sales cancellations over the past week, the cotton market hangs tough as U.S. planting continues.

Market Analysis

Shurley: Is This the Wake-Up Call We’ve Been Expecting?

May 15, 2017

Market movement in the past few weeks may be the wake-up call the industry has been expecting.

Market Analysis

Market Holding, but Lock in Prices Now

May 15, 2017

Cotton’s recent price surge is likely not done yet. But, growers who have not priced their 2017 crop should do so soon before the market softens.

Market Analysis

Cleveland: Is 80 Cents Within Reach?

May 5, 2017

The expiring May contract established a new high on the week, potentially setting the stage for July contracts to trickle higher.

Market Analysis

High Quality Cotton Bumps Export Demand and Prices

May 2, 2017

The 2016 U.S. cotton crop produced high yields and high-quality fiber, triggering a spike in export demand and higher market prices.

Market Analysis

Cleveland: Prices Holding in Face of Softening Exports

May 1, 2017

The bulls continue to push for higher prices, but the softening of exports are starting to lay the foundation for price slippage.

Market Analysis

Strong Market Support Pushes Prices Higher

April 21, 2017

Cotton prices made a run higher this past week, as export sales and inquiries continue to provide support to the market.

Market Analysis

Shurley on Cotton: Exports Continue Upward Trend

April 12, 2017

USDA’s April supply and demand estimates increased U.S. cotton exports for the 2016 crop year to 14 million bales – a surprising upward jump, but one that is certainly justified.

Market Analysis

Cleveland: Strong Exports Driving World Stocks Lower

April 10, 2017

Strong export sales and brisk shipments of U.S. cotton should continue for at least 2-4 more months, helping to lower world cotton stocks and maintain prices in the 70s.

Market Analysis

Shurley on Cotton: How Do Increased Acres Impact Prices?

April 3, 2017

The market anticipated an acreage increase for cotton, and USDA says the number is roughly 350,000 acres more than most expected. How does this impact the market and why?

Market Analysis

No Surprises When It Comes to Acreage or Exports

March 31, 2017

U.S. cotton acreage predictions in USDA’s 2017 Prospective Plantings report were not surprising. Neither were the export sale and delivery numbers that the U.S. continues to enjoy.

Market Analysis

Cleveland: Market Still Looking for Its Top

March 26, 2017

The market is now showing a tendency to sell off and lose daily gains as the trading day ends. It’s really doing nothing more than still trying to pick its top.

Market Analysis

Cotton Prices Reach Upper Third of Historical Range

March 17, 2017

The cotton bull made another impressive stand on the past week, as cotton prices continue to hold in the upper one-third of its historical price range.

Market Analysis

Shurley on Cotton: New Crop Strength and Outlook

March 13, 2017

Four factors are driving the new crop strength and outlook for cotton in 2017.

Market Analysis

It Bears Repeating – Price New Crop Now!

March 13, 2017

Two things to keep in mind: If you like the price enough to plant cotton, then like the price enough to sell some of it. And, December futures are expected to move 10-15 cents lower.