Cleveland: Price Battle Continues as Cotton Settles on Support Price
October 30, 2012 The cotton battle continues as the market gave up the prior week’s gains, sulking its way back down to the major support level at 72 cents. Thus, is it now back where the rally had begun less than two weeks ago. Too, the weekly export report revealed the expected; few export sales with the market at 76 cents and above.
This week’s sell-off did generate more export interest according to the merchandising community. Cotton news was all but nonexistent and the market has now been down in five of the past six trading days. However, this has generally also been the situation with the oilseed and grain complex.
The rally did provide an excellent opportunity for grower fixations. Cooperatives, along with other growers, indicated they were successful in pricing most of what they had planned at the current time. Immediate demand continues to be the major highlight that is providing support to the market. Immediate mill needs have, to date, been satisfied on price pull backs. Growers have rewarded the hungry price rallies by feeding it with more and more fixations. As much as anything it is the grower fixations that have stymied the price advance. Yet, mills continue to seek cotton for immediate needs. Thus, the market should continue to have price bumps similar to what was just experienced.
Export cancellations were noted this week, but it was believed that the cancellations were the result of an agreement between the mill and the merchant to allow the cancellations and the mill repurchased at a lower price. While the cancellations were recorded in this week’s report, the “repurchases” will not be accounted for until the next Thursday report. Yet, export sales to China continue and have now risen to 2,456,700 RBs. This compares very favorably to the same date year-ago sales of 2,648,300 RBs. This is positive in that China is forecast to note a major reduction in U.S. cotton purchases this season. However, as was noted in recent weeks, with New York at 72 cents, it is typically less expensive for Chinese mills to buy U.S. cotton, even after paying the import penalty (penalty for non-quota imports).
Growers are cautioned that continued rallies above the 75 cent level should be used to for additional price fixations. While certificated stocks are low and this, in combination with the low volume of certificated stocks and the immediate needs of international mills for U.S. cotton, will support prices as we move closer to the December delivery period. However, other than the late winter/spring planting rally, the market is not poised to gain in the March/May/July contracts relative to the gains experienced so far in the December. The 70 cent – 72 cent price-support will continue to hold.
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