facebook_pixel

Cotton Market is Ripe for a Rally

Cotton attempted to move higher during the week, but failed on Friday (December 5) to make a four day run of higher prices.

The market, trading at some 60 cents plus most of the week, settled slightly lower on Friday’s close at 59.64 cents, basis March. Boosted by solid export sales and shipments – as well as a USDA report from its Beijing office outlining why the official USDA forecast of Chinese ending stocks was as much as four to five million bales too high – prices approached 62 cents before faltering and fell below 60 cents.

The market will have to wait until next week when USDA releases its December supply demand report to see if the official report incorporates the suggestions of its office in China. With that backdrop, the market continues its range bound trading between 58 cents and 62 cents.

Since the prior long term support at 61/62 cents has been penetrated, that same level is now the overhead resistance, and the New York March contract will have to close above that level to trigger a short covering rally. Yet, until that resistance is broken and the breakout can settle above 61.50 cents, the 57.00 to 61.50 cent range will dominate as the market continues to consolidate within those price parameters.

Nevertheless, the market is ripe for a rally, as the seasonals suggest a price rally will be forthcoming in the December-January time frame. Additionally, the speculative funds are historically oversold, as speculative shorts are approaching levels not seen since some five years ago. Thus, a short covering rally could possibly be triggered sooner than later.

The current price consolidation activity with its 450-point trading range has proven to uncover excellent demand. Too, buying interest has been spread across 15 to 20 countries, indicating demand remains available for quality cotton.

Shipments have staged back-to-back weeks of marketing year highs or almost new highs. Export commitments for the marketing year are at 73 percent of the USDA annual estimate, compared to the five year average of 71 percent. Yet, the West Coast port difficulties and work slowdown is being closely monitored. Delivery dates are extremely sensitive to Chinese contracts. By contract and government decree, spinning mills can declare a late arriving delivery as null and void with no recourse to the seller.

Growers are increasingly moving cotton to the CCC loan program, further widening the shortage of quality cotton required by Asian/Subcontinent mills. Merchants have had to do more shopping and scrambling to locate available cotton at a time when mills have stepped up their requests and inquiries. The Chinese continue to withhold cotton from their strategic reserve, and the Indian government continues to purchase grower cotton to boost in-country prices paid to growers.

All of these factors work in unison to maintain the world price in the high 60’s and supporting the New York ICE contracts.

Yet, the most promising thoughts to me arose this week at a meeting where I was privileged to exchange ideas about the U.S. and world cotton situation and outlook with the major cotton analysts. The striking element to me was the absolute bearish sentiment by all sitting at the table.

One comment was, “Why is cotton not 50 cents?”

My answer was silence! I feared if I dare open my mouth that I would be mauled by multiple bears, over and over again. With all the paddling downstream, I am thinking it is time to set my oars in a different direction.

No doubt, the world is awash with cotton. Yet, the Chinese continue to send signals that they will sustain an orderly approach to moving cotton from their reserve and, therefore, not crash prices. Too, while none at that table agreed, most marketing firms believe Chinese imports – as they have done the past five years – will measurably exceed the current USDA estimate.

With record yields seemingly occurring year after year as a direct result of technology, growers are challenged to review their annual cost of production using current yields as the norm in calculating costs and returns. Doing so will enlighten some as to the true potential profitability of cotton.

Topics: ,

Leave a Reply

Market Analysis Stories
Market Analysis

Cotton Prices Settle, Poised to Climb Again

February 16, 2018

The market’s downside move appears to be over, ending a three-week downturn.

Market Analysis

Cotton Futures Nudge Higher, Despite Forecast for Rising U.S. Sowings

February 13, 2018

Cotton futures nudged higher, despite a much-watched survey on U.S. sowings showing a seven-year high, as the estimate came in

Market Analysis

Still Optimistic, but Fundamentals Do Rule the Market

February 3, 2018

Last week’s price correction was overdue, yet the market is still positive. But it’s best to remember that the simple fundamentals of supply and demand do rule the day.

Market Analysis

“Here We Go Again” as Market Preps Another Run

January 26, 2018

The price breakout above 80 cents continues to build its base in the very low 80s as it prepares for its next challenge to the 85 cent level.

OA Cleveland
Market Analysis

Could Quality Shortage Push Cotton to a Dollar?

January 19, 2018

Cotton’s roller coaster price trip is on, and it’s really just beginning. The steep incline is in front of us.

Market Analysis

Shurley: Things to Consider as Prices Climb

January 19, 2018

The reasons for better prices seem fairly obvious, but the strength of the current uptrend has been surprising. Looking ahead, growers need to keep certain factors in mind.

Market Analysis

Cleveland: The Bull Will Continue Charging

January 12, 2018

Multiple market factors are at work, with demand continuing to lead the way to higher prices. That means the bull market will keep charging ahead.

Around The Gin
Product News

Bayer Shares the Risk with Cotton Farmers

January 26, 2018

Bayer offers replant, crop loss and yield protection to growers who plant FiberMax and Stoneville cotton seed.

Product News

Americot Adds New Sales Support in GA, KS and TX

January 23, 2018

Americot has expanded its sales support team in Georgia, Kansas and the Rolling Plains of Texas.

Product News

Indigo Offers Premium for Indigo Cotton Production

January 9, 2018

Indigo Ag has announced a new program that offers significant price premiums for U.S. cotton growers who contract to grow Indigo Cotton.

Product News

New Bayer Varieties Focus on High Yield, Adaptability

January 5, 2018

Bayer releases five new FiberMax and Stoneville varieties for introduction in 2018.

Product News

New PhytoGen TRiO Guards Cottonseed Investment

January 3, 2018

New PhytoGen TRiO seed treatment helps provide early season protection for young cottonseed from diseases, insects and nematodes.

Product News

Americot Adds Seven to Sales, Research Teams

December 20, 2017

Americot has added seven new sales and research associates to the company’s staff across the Cotton Belt.

Product News

Seven New Varieties in Deltapine Class of 18

December 11, 2017

Seven new varieties – including five Bollgard 3 XtendFlex offerings – join the Deltapine product lineup as the Class of 18.

Product News

Special Roundup Ready PLUS Incentives for Arkansas

December 7, 2017

Monsanto is offering a special Roundup Ready PLUS Crop Management Solutions platform in Arkansas for 2018 for growers planting XtendFlex cotton and Roundup Ready 2 Xtend soybean varieties.

Latest News
Market Analysis

Cotton Prices Settle, Poised to Climb Again

February 16, 2018

The market’s downside move appears to be over, ending a three-week downturn.

Market Analysis

Cotton Futures Nudge Higher, Despite Forecast for Rising U.S. Sowings

February 13, 2018

Cotton futures nudged higher, despite a much-watched survey on U.S. sowings showing a seven-year high, as the estimate came in

Market Analysis

NCC: Multiple Factors Offer Mixed Signals for Cotton

February 11, 2018

According to NCC economists, a few key factors will shape the U.S. cotton industry’s 2018 economic outlook.

Market Analysis

Talking Curveballs, Credibility and Carryovers

February 9, 2018

The February WASDE report served up a curve ball that caught the industry off guard. For the sake of USDA’s reputation, I hope they are correct.

Market Analysis

Still Optimistic, but Fundamentals Do Rule the Market

February 3, 2018

Last week’s price correction was overdue, yet the market is still positive. But it’s best to remember that the simple fundamentals of supply and demand do rule the day.

Market Analysis

“Here We Go Again” as Market Preps Another Run

January 26, 2018

The price breakout above 80 cents continues to build its base in the very low 80s as it prepares for its next challenge to the 85 cent level.

Market Analysis

Could Quality Shortage Push Cotton to a Dollar?

January 19, 2018

Cotton’s roller coaster price trip is on, and it’s really just beginning. The steep incline is in front of us.

Market Analysis

Shurley: Things to Consider as Prices Climb

January 19, 2018

The reasons for better prices seem fairly obvious, but the strength of the current uptrend has been surprising. Looking ahead, growers need to keep certain factors in mind.

Market Analysis

Cleveland: The Bull Will Continue Charging

January 12, 2018

Multiple market factors are at work, with demand continuing to lead the way to higher prices. That means the bull market will keep charging ahead.

Market Analysis

Cleveland: Don’t Ignore the Gift Horse. Feed the Market!

January 7, 2018

Don’t get caught looking a gift horse in the mouth. Cotton prices are at a profitable level for growers, and the market is asking to be fed.

Market Analysis

Shurley: New Year Cotton Policy Update

January 5, 2018

Recent legislative action in Congress could potentially bring cotton back under Title I commodity protection. Dr. Don Shurley explains the details.

Market Analysis

Shurley: December Report Seals the Deal

December 19, 2017

Based on the December USDA Crop Production numbers, any notion of this 2017 crop getting below 21 million bales seems unlikely at this point.

Market Analysis

It’s a Wonderful Day in Cotton’s Neighborhood

December 15, 2017

With apologies to Mr. Rogers…it’s a wonderful day in the neighborhood, and the cotton market has been mine.

Market Analysis

With Prices Rallying, It’s Time for “Significant Action”

December 8, 2017

The long-awaited rally above 70 cents appeared to mature this week. For those not already priced at 75 cents, it could be time to take significant action.

Market Analysis

Prices Push Above 70 Cents as Demand Remains High

December 2, 2017

Driven by tightening world stocks and led by an ever-increasing world consumption, cotton prices continue to move higher.