Cleveland: Sporadic Pattern Developing in Cotton Market

Cotton prices moved back and forth all week as early week losses were recaptured on Thursday only to lose ground in Friday’s trading.  This will likely remain the pattern throughout the planting season assuming no changes in current weather conditions.  Currently the principal driver behind in cotton market is and will remain planting conditions and planting progress.  The demand side will remain the secondary driver as general economic activity will provide demand news.  December is attempting to break above 91.00-91.50 cents to establish bullish momentum while the July contract is looking to top 92.50-93.00 cents to build near term momentum.   Yet, in the absence of changes in weather patterns the July contract will likely go into First Notice Day with the current trading range in play.  Additionally, the longer it takes to break above the above price resistance levels the lower the probability of a price breakout to the upside.
 
U.S. export sales responded to last week’s lower cotton prices as net Upland sales were 144,800 RB for 2011-12 and 56,000 RB for 2012-13.  Pima sales were 5,100 RB.  Shipments, expected to be seasonably strong this time of year were just that, coming in at 287,200 RB.  It is clear that price activity below 89 cents uncovers very good demand.  This, of course, is the basis for expecting the current trading range to continue, that is, cotton is moving at the current price level.   Export sales were actually the strongest they had been for a month.  
 
Continuing with the demand side of the price equation, economic conditions continue to improve.  Economic growth was up during the first quarter of the year, albeit was not as robust as the prior quarter.  Nevertheless, there was measurable growth.  While a number of signals were “mixed,” they were all, without question in positive growth territory.  
 
Both the July and December contracts experienced a healthy increase in on call sales during the week pointing to the continuation of mills to delay fixing the price of cotton they have purchased.  Thus, the mills point of view is that prices will come down as the year moves forward.  Of course, that is typically the view of mills in uncertain times.  Nevertheless, we are again reminded that strong export sales surface on any price decline below 89 cents.
 
Cotton plantings around the globe are increasing, but none faster than in the U.S.  Planting progress was above 17 percent.  The 2012 crop should be very early.  Planting progress is far ahead of the average.  The warm spring means that the crop should get off to a faster than average start and harvest will be early.  The peak harvest could come as early as late October.  Yes, Mother Nature will have much to say about this at a later date.  The Midsouth and Southeast have had ample moisture as well as heat; their start is ahead of schedule.  South Texas is off to a rapid beginning, but moisture on the Texas Plains is all but no better than a year age.
 
With demand slightly better Mother Nature’s moisture blessing or lack of, for the Texas holds the initial key to price movement. The long range weather forecasters continue to talk of the possibility of a three to five year cyclical drought on the Plains, but we would all want to see the typical early June gully washer.