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Cotton Prices Itching to Move Higher, as Growers Ponder Acreage Shifts

Cotton prices weathered this week’s attack of seemingly disinterest by most in the industry to close on March 27 at 63.51, basis the nearby May contract.

The December contract was near 64.75.

Once again, the export market was supportive, as was the growing belief that the Indian crop truly is smaller than the USDA forecast. However, USDA’s cotton ginnings report indicated the U.S. crop was 216,000 bales larger than the current estimate of 16.1 million bales.

In holding on to last week’s gains, the market demonstrated it is comfortable with higher prices. Yet, planting and production dynamics are still in full throttle and hold the potential for larger than expected U.S. plantings. Expectations are for 9.2 to 9.3 million acres. Nevertheless, the five cent trading range between 61 and 66 cents should continue to dominate trading activity, with the bulk of the trading within 150 points of 63 cents.

USDA will release its March plantings report on March 31, based on conditions as of March 1. However, corn planting across nearly all of the Cotton Belt is well behind due to extremely wet weather. The optimum planting time to plant corn in the Cotton Belt is well past, and growers will be reluctant to plant beyond the end of next week (April 4). Thus, cotton will be the probable alternative for most of that acreage, and therein lies the potential for larger than expected cotton acreage.

Nevertheless, all signs do point to substantially smaller world plantings of cotton. For example, very recently China was thought to be looking at a 13 to 15 percent plantings decrease. Now, the decline is expected to be 18 to 20 percent.

Thus, cotton prices are itching to move higher, especially as China continues to signal it wants more imported cotton. Adding to this is the recent concern of quality losses to the Australian crop due to widespread rains as harvesting begins. With that crop essentially 100 percent sold, the U.S. stands to gain more exports. Thus, it is expected that the increase in the U.S. crop will be added to exports, not to carryover stocks.

Export commitments already stand at 97 percent of the USDA estimate for 2014-15. Thus, the four month call for increasing the U.S. export estimate continues to mount steam.

Another feather in the cotton cap is that speculative and managed accounts have substantially reduced their short positions and have accumulated a treasure trove of cash that is looking for a home. Some of that money will definitely come to the long side of cotton if the market can maintain its current level of consolidation and ease marginally higher.

While prudence may call for purchasing puts now, it is suggested that growers hold off on purchasing puts until December futures can again top the 66 cent level. Global warming or not, Mother Nature has turned the weatherman upside down.

The signals for higher prices tower far above the call for lower prices. December has 70 cents plus written all over it.

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