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

Shurley: Demand Is Key to Price Strength and Stability

November 21, 2017

Demand is the key to cotton's future. We still have a way to go, but the outlook has certainly improved.

Market Analysis

Cleveland: Yields, Quality, Consumption Still Rising

November 4, 2017

Reports of high yields, premium quality and growing consumption are keeping prices at the higher end of the trading range.

Market Analysis

India and Frost Combine to Prop Up Market

October 27, 2017

India’s plan to keep more of its cotton for domestic use, plus a potential freeze in West Texas, propped up the market during the past week.

Market Analysis

Bears Growling on Harvest and Demand Challenges

October 22, 2017

Although current trading activity represents a bearish price outlook, Dr. O.A. Cleveland still believes the 65 cent price support will hold. . .even though more experts are abandoning that position.

Market Analysis

Shurley: October Numbers Not As Expected, But Prices Hold

October 18, 2017

USDA’s October production and supply and demand estimates are like apples – pick and choose and you’ll find some numbers you like...and some you won’t.

Market Analysis

Trying to Read the Market: Bearish, Neutral or Bullish?

October 13, 2017

After finding USDA’s October WASDE report initially bearish and somewhat neutral, cotton prices went mildly bullish thinking about stronger demand and the real size of the U.S. and foreign crops.

Market Analysis

Examining Loan Program and Rate Changes for 2017

October 9, 2017

Dr. Don Shurley provides an analysis of what changes in the marketing assistance loan for 2017 could mean for cotton growers.

Around The Gin
Product News

Bayer Looking for FiberMax One Ton Club Growers for 2017

November 16, 2017

Cotton growers who produce an average of 2,000 lb/A on 20 or more acres planted to FiberMax varieties in 2017 are eligible to be part of the 13th annual FiberMax One Ton Club.

Product News

Monsanto Delays NemaStrike for Additional Review

November 2, 2017

After finding cases of skin irritation, Monsanto is pulling its nematode seed treatment NemaStrike for further product review.

Product News

Intrepid Trio: Naturally Balanced Nutrition in Every Granule

November 1, 2017

Intrepid Trio contains three essential nutrients for cotton plants.

Product News

Save Time, Increase Efficiencies with Mixmate

November 1, 2017

Mixmate from Praxidyn is a precision chemical mixing system for small farms to large enterprises.

Product News

Crumpler Ironworks & Fabrication

November 1, 2017

Crumpler Ironworks & Fabrication is committed to providing the highest level of service, honesty and integrity, regardless of project size.

Product News

Delivering Proven Performance Across the Cotton Belt

November 1, 2017

Seed varieties, traits and crop protection products from Bayer deliver proven performance to growers across the Cotton Belt.

Product News

Growers Continue to Count on Americot and NexGen

November 1, 2017

Americot is dedicated to working with cotton growers throughout the Cotton Belt to provide elite performing NexGen varieties within the marketplace.

Product News

Deere Adds New Narrow Track Versions to 9RX Tractor Lineup

November 1, 2017

John Deere has added three new 9RX Narrow Track Tractors, expanding its lineup of high-horsepower machines.

Latest News
Market Analysis

Shurley: Demand Is Key to Price Strength and Stability

November 21, 2017

Demand is the key to cotton's future. We still have a way to go, but the outlook has certainly improved.

Market Analysis

U.S. Sales Booming to Meet Bullish Demand

November 17, 2017

Cotton appears to be caught in a battle between supply and supply. And that keeps prices well positioned to stay where they are.

Market Analysis

Increased Cotton Demand Moving the Market

November 11, 2017

A bullish supply demand report for November proves that demand moves markets. And demand for cotton has resurfaced.

Market Analysis

Cleveland: Yields, Quality, Consumption Still Rising

November 4, 2017

Reports of high yields, premium quality and growing consumption are keeping prices at the higher end of the trading range.

Market Analysis

India and Frost Combine to Prop Up Market

October 27, 2017

India’s plan to keep more of its cotton for domestic use, plus a potential freeze in West Texas, propped up the market during the past week.

Market Analysis

Bears Growling on Harvest and Demand Challenges

October 22, 2017

Although current trading activity represents a bearish price outlook, Dr. O.A. Cleveland still believes the 65 cent price support will hold. . .even though more experts are abandoning that position.

Market Analysis

Shurley: October Numbers Not As Expected, But Prices Hold

October 18, 2017

USDA’s October production and supply and demand estimates are like apples – pick and choose and you’ll find some numbers you like...and some you won’t.

Market Analysis

Trying to Read the Market: Bearish, Neutral or Bullish?

October 13, 2017

After finding USDA’s October WASDE report initially bearish and somewhat neutral, cotton prices went mildly bullish thinking about stronger demand and the real size of the U.S. and foreign crops.

Market Analysis

Examining Loan Program and Rate Changes for 2017

October 9, 2017

Dr. Don Shurley provides an analysis of what changes in the marketing assistance loan for 2017 could mean for cotton growers.

Market Analysis

Prices Still Sideways as Bearish Moods Grow

October 6, 2017

The market is watching weather and waiting for USDA’s October report. But bearish signs are starting to surface in some segments.

Market Analysis

Cleveland: Market in Hang On and Wait Mode

October 1, 2017

Cotton prices are holding without clear direction right now, as the market continues to watch USDA projections and harvest conditions for answers.

Market Analysis

Lower Chinese Stocks, Higher Polyester Prices Offer Market Hope

September 22, 2017

The market is holding steady, thanks again to China. Their Reserve auction has reduced cotton stocks and bumped consumption. And now, polyester prices are rising as the Chinese trim production.

Market Analysis

USDA Spins Market with Record Supply-to-Use Ratio

September 15, 2017

Hurricanes were but a mere hiccup for the world and U.S. crops. Instead, USDA spun some record-setting numbers that left the market dizzy.

Market Analysis

Shurley: Cotton Makes a Hard Landing

September 15, 2017

Following USDA’s September numbers, December cotton seems to have landed back in the 69-cent, pre-Harvey area.

Market Analysis

Higher Prices Holding as Winds Keep Blowing

September 10, 2017

An ill wind is blowing amidst the chaotic cotton trading wrought by back to back hurricanes slamming into two of the country’s major cotton producing regions. But which way does the wind blow?