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Cleveland: Is 80 Cents Within Reach?

Cotton prices continue to hold near the upper end of the recent trading range. In fact, the expiring May contract did establish a new high on the week.

The spot contract month July continues to flirt with 79 cents plus, but it must make a decisive close above 79.50 cents before it can lay claim to the 80-plus trading arena established by the May contract. One analyst did point out that where May goes, July was sure to follow. There was good reasoning. Thus, the stage is set for July to trickle higher.

Yet, with not much more than a trickle expected, the 80-81 cent level could be more than July can cope with. Nevertheless, July futures can expect support from limited exports and mills attempting to unwind on-call sales.

The new crop December contract still finds excellent support from the May and July old crop fundamentals. This support should continue into at least mid-June. Market fundamentals were little changed on the week, and such is the expectation for the coming week or even two weeks. Open interest has steadily climbed, and on-call sales have help the same 10+:1 ratio to on-call purchases. Thus, this statistic will bear watching as the July contract moves toward first notice day some 34 trading sessions away.

Export sales for the week ending April 27 were described as anywhere from poor to average to excellent. I will just call them okay, as price rationing is clearly having an impact.

Net sales totaled 152,400 RB of upland and only 1,600 RB of Pima. Primary buyers were Vietnam, Indonesia, Turkey, South Korea and China. Sales of upland for the 2017-18 marketing year were 97,200 RB, and the primary buyers for next season were Vietnam and China.

Even with price rationing, a slowdown in sales is also based on the very tight availability of U.S. stocks. Weekly sales will most likely total only 150,000 RB or less for the remainder of the season. U.S. stocks are simply that tight. Additionally, the Southern Hemisphere crop is beginning to compete in the export market.

Export shipments have continued strong through the slowdown in sales. Upland shipments totaled 357,300 RB, with principal destinations being Vietnam, Indonesia and Turkey.  Pima shipments totaled 18,100 RB and were spread between 13 destinations.

Cinco de Mayo has come and passed, and the Rio Grande Valley crop is off an excellent start – thus, portending an excellent beginning for the 2017 U.S. crop. USDA reports that plantings and crop development throughout the Cotton Belt are very much on schedule. A cool spell moved through the Mid-South at week’s end, and wet fields have delayed some planting. But, it is still early May, so there are not any concerns.

I continue to feel the market is simply picking its top. An orderly transition by mills out of their on-call positions suggests the top in is. However, if the mills remain stubborn and keep a bearish attitude, then their positioning will likely add a couple more cents to the July and 100 points to the December.

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