Cotton Holds Its Own Amid Call for Lower Prices

The same funds that took the market down the final two trading days of 2014 were the same ones that were buying the market the first few trading days in January.

Despite spending nearly all week in positive territory, the market was somewhat thinly traded, but closed slightly higher and withstood the ever increasing value of the U.S. dollar. Too, cotton was able to defend itself against price attacks on other agricultural commodities. Thus, I count the week as a winner for cotton, as it held its own despite a widespread call for lower prices.

Nevertheless, the market remains trapped with its range bound trading between 57.50 and 62.50 cents. Too, the nearby timeframe offers little reason to expect any announcement to affect the range within the next three weeks. The trading range should continue as the spec fund realignment for 2015 includes additional money – above the 2014 level – for long futures trading of cotton.

USDA will give us its January supply demand report on January 12. The industry does not have firm ideas of specific changes. However, sooner or later USDA will have to increase its estimate of U.S. exports (currently at 10.0 million bales), as well as its estimate of world consumption.

International news continues to confirm an improving yarn market in China and in other Asian markets, as well. Too, Chinese mills now often mention they will need more Australian, Brazilian and U.S. cotton. With both the Australian and Brazilian crops already spoken for, the U.S. becomes one of the only growths available.

U.S. exports will likely rise to 10.3 million bales by the end of the marketing year, up 300,000 bales above the current estimate. This would take August 1, 2015 carryover stocks down to some 4.3 to 4.4 million bales, and support a May to July trading potential between 65 and 68 cents.

Participants at the rather thinly-attended Beltwide Cotton Conferences expressed concerns regarding the level of U.S. plantings/production in 2015. Participants estimated that 2015 U.S. plantings would drop some 12 percent, ranging between 9.5 and 9.8 million acres. Production was forecast at 14.4 million acres, and domestic consumption is expected to see a slight increase to 3.9 to 4.0 million bales.

The U.S. economy will benefit from more consumer spending – which is good for cotton – as well as new textile spindles being installed in the U.S.

Analysts actively cautioned that 2015 could be another year when prices do not cover production costs. Certainly, it is that concern that is leading to the estimate of declining plantings. The December 2015 contract has traded 65 to 66 cents for months and will see little change going into the spring planting period, despite the downturn in both corn and wheat prices.

Post plant soybean prices are expected to fall to near $9.25-$8.50 level. Yet, that ratio will continue to favor soybeans for many growers. However, three bale and plus producers should find cotton to be very competitive with most any crop. Too, quality premiums will continue to grow.