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Current Market Level Holding Its Ground

While the nearby cotton futures price continues to dig, scratch and claw its way back and forth between 59 and 61 cents, basis the New York ICE, it appears to be going nowhere. However, the market’s ability to hold the current level has overshadowed the fact that cash prices around the world have firmed a bit, signaling a stronger basis position for most growths.

The global A-Index is again hovering at the 70 cent level, giving additional credence to the idea that the market is, in fact, successfully marking a bottom as the Northern Hemisphere harvest moves well past its peak period. Traditionally, this indicates that the bulk of the “available” selling pressure is behind us, and certainly the markets appear to be in agreement.

However, more selling pressure will come in January and February with the introduction of the new tax year, but more so in response to prices moving a hundred points or more higher.

The market held this week despite another round of bearish news thrown its way with the Indian government’s midweek announcement that it will begin selling government-owned cotton that had been purchased in an effort to support prices. The action was expected, but not for a number of months.

There was a solid round of hedging that resulted from the action, but it was met with excellent export sales, which halted the price decline and then took prices higher. Price settlement on the day in question was actually marginally higher.

Export sales for Upland were a net of 89,500 RBs, with Pima sales of 4,800 RBs. Granted, the sales were not great, but they were very respectable. Additionally, weekly shipments totaled 179,500 RBs – well beyond the weekly average required to meet the USDA marketing year export estimate of 10.0 million bales. Too, China continues to show up as a buyer of U.S. cotton.

The Chinese cotton association released its latest estimate of planted acres, yield and production earlier in the week. This generated bullish interest, as the production estimate was nearly 2.0 million bales lower than the current USDA estimate of 30 million bales. The crop was estimated at 28.2 million bales. Yet, as this data will form the basis of the new subsidy program for Chinese growers, it is thought to be the most reliable (accurate) cotton estimates to ever come out of China.

Playing the what if game – i.e., using the Chinese production number of 28.2 million bales and the USDA Chinese attaché report on cotton stocks – then the “official” USDA estimate of total cotton available in China is overestimated by some 6 to 8 million bales.

Prices will remain under pressure. However, improving world consumption – once again being led by the U.S. consumer’s purchasing power – will generate a slowing uptick in cotton prices, with futures set for a 6 to 10 cent increase as the world begins to take note of the pronounced shortage of premium quality cotton, the heavy reduction in Chinese production, and the realization that much of the Chinese stock is all but non-spinnable.

Due to market closures during the Christmas and New Year celebrations, I have not traditionally written a report during these weeks. That pattern will follow again this season, unless very unusual market events occur. The next report will be in early January, on the heels of the 2015 Beltwide Cotton Conferences in San Antonio, TX.

Have a blessed season and a very happy New Year. Thank you for your support.

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