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Cotton Market Poised to Respond to Mother Nature

The range bound trading continues for cotton without any change in sight until time passes and Mother Nature does what she does. As world production drops and consumption continues to demonstrate solid signs of increasing, the potential reduction in world stocks is not enough to push prices above the long-standing trading range and the 68 cents resistance, basis December. The fundamentals have not changed. The absence of change leaves the market in an ever so slight uptrend, but still within a price channel. The trading range will continue. Yet, the market appears to be nervous regarding the upcoming supply demand report.

This week’s break in the weather across the Southwest did allow for planting, but the region needs another three weeks to get the crop in. That is, due to insurance deadlines, it needs nearly three consecutive weeks of open weather. The possibility for moisture is showing for the coming week. Light showers could be tolerated. An inch or more of moisture would drive growers out of the fields for three precious days. The end of next week will have seen all insurance planting deadlines pass except for about one million acres in Texas. Thus, we are getting to the short rows with respect to insurance planting dates for some 87 percent of the Southwest cotton acreage.  Potentially, the coming two weeks will tell the tale. But remember, tomorrow’s weather is more important than today’s with respect to a crop in the field.

Both sales and shipments of U.S. cotton continue to impress market watchers. Net sales of Upland during the current week totaled 106,600 RB for the current marketing year. Sales for delivery in 2015-16 totaled 53,600 RB. Destinations included the major U.S. customers of China, Turkey and Vietnam and 16 countries in total. Only 1,200 RB bales of Pima were sold. Export shipments continue to surpass USDA expectations as 300,500 RB of Upland were loaded for shipment this week. Pima shipments totaled 8,600 RB. USDA currently estimates U.S. exports at 10.7 million bales. Look for this week’s June WASDE report to show an increase of 400,000 bales taking the new USDA estimate up to 11.1 million bales. Yet, there are still merchants indicating that business appears to be there for shipments to climb as high as 11.2 million bales.  That is a bit heavy for me, but I hope to see it. Regardless, U.S. carryover stocks, presently estimated by USDA at 4.4 million bales, will fall to 3.9-4.1 million in next week’s report.  Actually, I think USDA will take the conservative approach and increase its export estimate only 300,000 bales, up to 11.0 million.

The past week was little more than back and fill action, yet, always within the trading range.  However, as has become its habit, the market gyrates between 64.50 and 65.50, for the most part.   This has maintained the price tendency of higher lows, but still within the trading range. The range will soon be broken. However, more so than anything else, Mother Nature holds the key.

The weather problems around the globe have become a bit more pronounced. Specifically, the Indian government has formally stated that the El Nino effect will be detrimental to its monsoon season. The level of U.S. plantings has gathered more discussion around the world. There could well be a breakout this week in anticipation of the world supply demand report. Certainly, the market will be choppy.

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