Bears Are Growling, but Market Holds Firm
January 19, 2015 The fifty-centers are still out there and are beginning to beat their drums louder and louder.
USDA’s January supply demand report set the tone with a slightly bearish/marginally-neutral report to begin the week. Then an epidemic ran through all commodities, including the agricultural markets, and spread to the equity markets, taking Wall Street lower as well all foreign exchange currencies. It is a rare and unheard of day when all foreign currencies lose against the U.S. dollar, but it happened last week.
This bearishness across all markets was enough to excite the bears, who are looking to break cotton’s 57 cent support, attack the 55 cent mark and – in their mind – look for a test of 50-52 cents. Yet, for now, the 58 cent support has continued to hold, and price breaks near that level have been met with excellent export sales.
Export sales for the week ending January 7 represented a marketing year high, as net Upland sales totaled 441,800 RB. Pima sales totaled 5,800 RB. Export shipments also established a marketing year high, as Upland shipments totaled 227,000 RB and Pima shipments were 7,000 RB.
Chinese purchases of Upland were 184,500 bales; followed by Vietnam with 127,000; Turkey with 54,000; and Taiwan with 21,200 bales. Thus, the major U.S. customers were significant buyers and were believed to be so again this week. Quality continues to be at the top of the Chinese mills buying list, as the nearby cash basis for Middlings and Strict Middlings improved in the face of lower New York ICE prices.
The January supply demand report increased U.S. production 161,100 bales – up to 16.1 million bales – and carried that through to ending stocks, increasing stocks to 4.7 million bales. The production increase came in all regions except the Southeast.
World production was marginally increased by 200,000 bales and is now estimated at 119.2 million. Coupled with a 400,000 bale reduction in world consumption, this pushed world carryover stocks to 108.6 million bales. The principal decline in consumption came from China, down to 36.5 million bales – a decline of 600,000 from the prior month. World consumption is now estimated at 112.2 million bales.
I continue to suggest that Chinese consumption will continue to increase during the marketing year. Additionally, this increase will add to U.S exports of raw cotton. After the release of the USDA supply demand report, China’s mills reported that yarn imports had increased, as had production orders. Recall the prior year’s cotton number were 120.4 million bales of production, 109.1 million bales of consumption and world carryover of 101.7 million bales. Thus, world carryover essentially increased seven million bales over the past twelve months.
The job of the cotton market is to reduce 2015 plantings such that a crop of some 104 to 106 million bales would be produced. Thus, the market needs to continue the current unfortunate slump in prices until the planting season is completed. That is, world plantings need to be reduced some 15 percent during the coming season. Current trends in Brazil and China offer such expectation, as well as in the U.S.
India should reduce plantings. But given that they have now overtaken China as the world’s leading producer, the country may well have a tendency to plant too many acres.
The bear continues to slash out with his razor sharp claws, but the current trading range has proven to be most resilient.
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