After making new contract lows and surfing lower all week, cotton prices climbed back to 61 cents, basis the nearby December futures contract. (The weekly settlement was not timely printed on either of my two screens; thus, there may be a light pole down somewhere between Prague, Czech Republic and Mississippi. Ah, technology!)
The market’s week ending rally off the high 59 cent lows and back to 61 cents was a result of the blessing of the export market. It indicated that mills could just not pass up 60 cents and stepped up their buying. Yet, there was little other fundamental news on which to hang its hat.
The “crazy” rains in India and Pakistan were likely more harmful than helpful, being only neutral at best. Anticipated rains across the Mid-South and Southeast are expected to be very detrimental to the crop, as it is too late in the season to boost yield, and far too much cotton is open to escape with only mild quality damages. Unfortunately, this is one of those million dollar weather storms that costs growers a million, rather than adding to the pot.
Nevertheless, the cotton market continues to be plagued by the demand side of the price equation certainly more than I expected, or possibly appreciated. We have touched on the subject of a definite improved economy in the U.S. Yet, where I obviously missed that call was on the internal rate of savings in the U.S.
The reward from energy saving in the U.S. has essentially gone to saving rather than consumption. Demand for neither durables nor consumables has seen an appreciable increase. The U.S. consumer, instead, has elected to continue paying debt and adding to savings. No doubt this is admirable and will, in the future, represent a huge boost for consumables.
Too, long run economists applaud this trait in today’s consumer. However, it does leave today’s economy with a bit of a leech riding on its back. The primary indicator of the health of the U.S. economy is Wall Street’s Dow Industrial Average and the U.S. stock market. Both indicators, while okay, are just that – no better than okay. The economy exerts praises from consumers, but not to the extent that they are prepared to decrease their level of savings and invest more in consumer spending.
Thus, the typical and usual big engine that is required to boost economic activity – the U.S. consumer – continues to occupy only the back seat in economic activity. Until, he – or she, as it were – is prepared to express contentment with their passbook savings account will economic activity and, thereby, demand for cotton and other consumables reclaim the number one role as the leader of economic activity.
Housing starts – long a key indicator for measuring cotton demand – have had little impact the past two years. Yet, the relationship will return, but only once the savings goal is reached.
Nevertheless, U.S. cotton continues to be in the catbird seat as international mills are facing a decline in supplies available outside of China. Chinese cotton is not acceptable to the export market. It is the U.S. styles and descriptions that represent the desired cottons in the demand stream. The movement of quality continues, and the new seed varieties delivered by the seed companies has carved that niche for the U.S. grower.
The U.S. merchant must now step forward and reward the grower for producing the fiber quality the seed companies promised to the grower. Too, and don’t even think about saying, “Well, I can’t get a premium from the mill for it.” The merchant has to actually compete for quality fiber.
The future of U.S. cotton is quality, and the marketing stream must participate or move out of the way. The grower is due to step forward and, if necessary, demand the premium that is offered upstream.
The market continues to suffer far more than I anticipated, but the availability of suitable supplies is very limited, and the market must come to quality in due time. Cotton is seven to ten cents too cheap.