facebook_pixel

December Futures Prices? Ask Mother Nature.

The 2017 Cotton Roundtable held last week with ICE in New York at the New York Stock Exchange focused on the size of the 2017 world crop, with emphasis on production prospects in India, the U.S., China and Pakistan. The demand side of the price equation was highlighted by the near-record volume of “next marketing year sales” by the U.S. and the immediate needs faced by world textile mills.

The speakers bracketed the current December 2017 futures contract between a low in the mid-50s to a high in the low 70s. Three of the speakers projected a price range between a low of 64 cents to a high of 72 cents. Another felt that the projected U.S., as well as the Indian and Pakistani crops, were such that New York could easily be pressured down to the mid-50s, basis the December contract. Another felt the range could vary between the very low 60s and mid-70s.

Yet, as has been discussed for more than a month, all agreed that Mother Nature holds the key to forthcoming price activity, as world demand – while improved over the 2016-17 marketing year – was well understood by the market.

India finally experienced very timely rains in the central region of the country. Heretofore, the already exceptional monsoon season in the northern region now projects throughout the country. USDA’s forecast for a 29 million bale crop is now very feasible.

The U.S. crop continues to improve, with the Southeastern and Mid-South crops showing the most improvement. The Rio Grande Valley and the Coastal Bend areas of Texas will likely exceed expectations. Harvesting is well under way in those areas, and growers have been pleasantly surprised with yields. The West Texas region continues as a mixed bag based on moisture conditions. The large high pressure system over West Texas discussed two weeks ago remains in place without any prospect of moving.

Speakers at the Roundtable had differing views of the projected crop size, but did agree that Texas was the wild card. They projected a range between 17.7 and 19.0 million bales. However, a crop of 19 million bales will require the high pressure to move out in the next three weeks. The early subsoil moisture bodes well for a big crop, but rains by mid-August will be necessary if it is to develop.

Likely, the USDA September crop report will be very telling if moisture has not been received by then. Given the projected abandonment, it is very unlikely the U.S. crop can exceed 19.0 million bales. However, without moisture in West Texas, the crop could still drop to 17.5 million bales. This is the basis for the continued reference to the importance of Mother Nature.

Forward sales of U.S. cotton into the next marketing year continue to approach record volume levels. Additionally, shipments for 2016-17 continue to exceed the projected pace forecast by USDA. This is only adding to the perceived tightness of stocks available for third quarter delivery and is raising concern regarding October and November fourth quarter delivery.

As has been stated, U. S. sales will slow when Indian sales begin to mature, but the industry is multiplying its concern regarding the severe overestimation of Indian stocks by USDA. Unlike in the U.S. and China, warehouse space in India is limited, and merchants report neither warehouses nor mills are carrying much volume. The cotton industry is voicing more concern as to where the stocks are, why India is importing cotton if it has stocks on hand, why traditional and very logical Indian export markets have significantly reduced purchases from India and a host of other questions if, in fact, India has over 12 million bales in inventory as reported by USDA. Many analysts now suggest that Indian stocks could be as much as 50% over-estimated.

The correct answer may not appear important to some. However, it is important from the position of market volatility, which would generate significant short term explosions in cotton prices. USDA has logically discussed the issue in terms of the time of year for which projections are based. However, time of year comparisons are not relevant with respect to whether the stocks exist or not. As such, there is increasing concern that the primary function of the market – price discovery – is being impacted by fictitious bales.

The market remains locked in a very narrow three cent trading range, while estimates of the world crop remain stable. The U.S. carryover of 2.9-3.0 million bales or less is earmarked for shipment in August and September. There will need to be some 2.5 million bales of the 2017 crop harvested in that time period if the U.S. is to meet its third quarter and early fourth quarter export requirements. This will keep a fire under the market into the early harvest period.

August should prove to be a turnaround month for cotton prices. Additionally, we have also mentioned several times that the 2017 cash basis going into the October-November period could prove very positive for growers. But don’t wait too long – gravy gets cold fast.

Give a gift of cotton today.

 

Topics: , ,

Leave a Reply

Market Analysis Stories
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

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?

Around The Gin
Product News

INTL FCStone Offers Online Tool for OTC Hedging Strategies

October 17, 2017

INTL FCStone Markets, LLC has introduced a new online pricing tool that provides users open access to the firm’s structured products pricing portfolio.

Product News

Americot Team Continues to Grow

October 6, 2017

Americot continues to expand the company’s sales and technical support team, with the addition of six new specialists located throughout the Cotton Belt.

Product News

NemaStrike Technology Ready for Nematode Control in 2018

October 6, 2017

Monsanto adds NemaStrike Technology as a new seed treatment solution to control nematode species across the Cotton Belt.

Product News

Americot Adds Three to Regional Sales Force

September 20, 2017

Americot, Inc. has added three new regional representatives to the company’s sales force.

Product News

Enlist One Herbicide Added to Enlist System

September 13, 2017

Dow AgroSciences adds a straight-goods 2,4-D choline herbicide for additional tank-mix flexibility in Enlist crops.

Product News

Elevore Herbicide Registered for Burndown Use

August 30, 2017

Dow AgroSciences’ Elevore herbicide has received federal registration for use in fall and spring burndown programs for cotton, soybeans and corn.

Product News

Stoneville Legacy Club Honors Charter Members

August 24, 2017

The new Stoneville Legacy Club honored 129 growers who recorded average yields of 1,794 lbs/A or higher on at least 20 acres with Stoneville cotton varieties.

Product News

Improved Bollworm Management Expected in 2018

August 23, 2017

Southeast Texas cotton farmers should have new tools available in 2018 to better manage bollworms and other potentially damaging pests.

Latest News
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?

Market Analysis

Post Harvey, 75 Cents Back in Cotton’s Sights

September 2, 2017

It remains to be seen if the greater loss from Harvey will be to cotton quantity or quality. But it likely means a wider trading range, with 75 cents now possible.

Market Analysis

Shurley: Storms and Other Unknowns for September

September 1, 2017

September could be interesting. Loss evaluation from Harvey will still be underway, and all eyes are watching Irma. How will it all impact USDA’s September report…if at all?

Market Analysis

Hurricane Harvey Leaves Several Market Scenarios

September 1, 2017

Following Hurricane Harvey’s rampage through East and Coastal Texas, cotton growers face several possible outcomes based on the level of damage to their fields.

Market Analysis

Market Watching for Harvey’s Impact on U.S. Crop

August 25, 2017

Hurricane Harvey blew prices to triple digit gains on the week. Now, the market will assess crop damage to see if the storm blew up crop projections as well.

Market Analysis

Was USDA Right? U.S. Crop Looking Bigger.

August 18, 2017

The U.S. crop is signaling that it is getting bigger. With nothing more than a good fall, the crop could climb as much as a million bales more than USDA’s August surprise estimate.

Market Analysis

Shurley: So Much for 18 Million Bales and Higher Prices

August 14, 2017

If USDA’s September numbers still validate a 20+ million bale crop, prices could slide. If not, the 68-70 cent level – or better – should hold.