A great week for cotton trading turned to paregoric, with a near 200-point drop on October 22 – on the heels of the world financial events that sent the U.S. dollar soaring 500 points the same day – followed by another 500 points in early trading on October 23.
The market did retake minor ground by that day’s close, but the inability to hold 64 cents was a blow to the market’s ability to generate new fund interest. Nevertheless, the quality shortage becomes more pronounced every week and will work its price magic sooner, rather than later.
The Chinese inclement weather has continued to reduce both the quality and yield of that crop. The Texas rains were not as severe as expected, and the present thought is that yield loss was minimal. However, quality loss appears evident, but it will be another week or more before much of that afflicted cotton will be graded.
Yet, an example of the untimely rains that hit Texas can be seen in the recent Florence, SC classing data. Prior to the Southeastern rains of three weeks ago, the dominant color grade was middling (31), followed by a nice showing of strict middlings (21). The prominent grade now is low middling light spotted (52). Additionally, the staple length is shorter, the micronaire higher and the strength weaker.
In short, the moisture reduced the heretofore high quality Carolina crop to one that will compete directly with the 55 million bale-plus low quality Chinese stocks.
The Mid-South is enjoying its second consecutive year as the home of high quality production in the U.S. (discounting the limited supply of SJV and AZ). The decision by seed companies to provide leadership and research has reintroduced Mid-South cotton to the world market and provided Mid-South and Southeastern growers a new outlet for their production. Prior to 2013, most of the Mid-South and Southeastern cotton had moved to the mid-level yarn spinning markets.
The last two crops have positioned the Mid-South crop to be the highest quality produced in the U.S. and become well demanded by high count spinners.
Net Upland sales for the week totaled 96,900 bales, with Mexico being the primary buyer (24,900 RB), followed by Pakistan (16,800 RB), Turkey (15,300 RB), South Korea (9,000 RB) and Indonesia (8,900RB). Some 14 countries were buyers, but purchases were generally light as referenced by two of the top five buyers taking less than 10,000 bales each.
Demand remains the culprit facing the market as consumer savings in the U.S. – coupled with weaker than expected economic growth in Europe and Asia – have worked to limit consumer purchases. Demand growth for cotton goods averages about 3% annually. Certainly this long-term growth level has not been met in recent years. Thus, pent-up demand continues to grow.
Now that consumers have enjoyed a year of savings, this demand is thought to be in the process of being unleashed, given the coming holiday season. However, the loss of demand at the hands of chemical fibers may prove to be too high of a hurdle for many.