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Cleveland: Strong Exports Driving World Stocks Lower

With apologies to Willie Nelson and Don Meredith, “Turn out the lights.” But then, the party is not over just yet.

The old crop bull has run his course, and new crop plantings will make it difficult for December futures to recapture its once 75-76 cent luster. However, strong export sales and brisk shipments of U.S. cotton should continue for at least two more months, if not the nearly four months remaining in the 2016-17 marketing season. The old crop July should continue to hold the 72 cent level or better, and this will maintain price support under the December contract into mid-May.

In its upcoming world supply demand report on April 11, look for USDA to increase its estimate of U.S. exports another 500,000 bales – just like last month – and adjust its forecast for the year upward to 13.7 million bales. The result would lower U.S. carryover to 4.0 million bales. Before the end of the marketing year, it may well be that U.S. exports climb to 14 million bales, taking U.S. carryover down to 3.7 million bales.

Additionally, with continued good sales out of the Chinese reserve, world carryover stocks will likely be down another 6.0 million bales on the year. Indian consumption could be somewhat lower, but only marginally.

Export sales for the week ending March 30 were a net of 270,000 RB of upland and 14,600 RB of Pima for the current season. Sales of 129,800 RB were reported for 2017-18. Thus, total sales were 416,400 RB. If the current pace continues for the remainder of the season, 2016-17 export sales would essentially total 16 million bales. Even if sales drop to only 150,000 bales a week, total sales would still climb above 15.5 million.

Shipments continue very brisk as well. Weekly shipments totaled 447,300 RB of upland and 16,100 RB of Pima – thus, the suggestion that this season’s export deliveries will climb to near 14 million bales. Therefore, some 2.0 million bales will likely be carried over for delivery in the 2017-18 marketing year.  Regardless, export sales will continue to be one of the fundamental factors supporting prices.

Too, with declining world stocks, the market will continue to find support for new crop, but with some slippage. However, given a good growing season, do not discount the possibility of December futures falling to the mid 60’s as it awaits the harvest season.

Speculative and limited fund money continued to leave the cotton market during the week. Mills were taking advantage of this trading and beginning to aggressively make fixations on their on-call sales contracts. The ratio of on-call sales to on-call purchases dropped to 10:1 this past week – still slightly bullish, but now only in a supporting role as opposed to being a leading price indicator. Mills will continue to take advantage of this, but a 10:1 ratio will likely help keep the July contract in the 72-75 cent range.

Mother Nature has provided an abundance of moisture the past 10 days to much of the cotton belt. However, some important areas remain deficient with respect to planting needs. Yet, as stated last week, this is the season for spring rains.

Keep the lights on, but the party is over.

Give a gift of cotton today.

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