Losing all its gains from the prior month, the cotton market was left stumbling and mumbling all week.
The penetration below the all-important 62 cent support, basis May, sets the market up for another challenge of 59 cents. However, as has happened time and time again, mills are coming to the rescue with solid purchases with the ICE below 62 cents.
The price slide was associated with the lack of new speculative longs, rather than the exit of existing longs. Thus, managed money remains in net support of cotton. Of course, the price increase that occurred several weeks past had been enough to cut off export demand, and that was the major culprit associated with the fall from 65 cents (if you really paid attention, March zoomed above 67 cents in late night trading on one occasion several weeks ago).
The May ICE contract should continue work the 61 to 66 cent level through much of the spring. There are important fundamental reports on the forefront, but the market – in my opinion – has already faded them. Therefore, we are likely in for a month – maybe two – of dull trading. The March planting intentions report will be out March 31.
USDA released, to absolutely no fanfare, its March supply demand report last week. The report offered limited changes that were generally related to consumption shifts in Asia that have been discussed the past three weeks. Included in those changes, USDA did finally recognize the major increase in yarn imports moving into China. Too, the Chinese are now making use of import quotas for raw cotton imports.
The weekly export sales report did, however, post a few positive surprises. Expectations were that sales would be strong. And strong they were. However, the big sale was for 2015/16 shipments, not current year sales. The South Korean textile industry has been a bit ahead of the global industry the past two years in booking cotton at very favorable prices. This past week, they likely hit a grand slam home run.
Sales for 2015/16 totaled 98,200 bales – near a record this early for a marketing year that does not even begin for another five months. South Korea accounted for nearly 35,000 bales. Thailand, Mexico and Vietnam accounted for the remaining purchases. Net sales of Upland for the current marketing year were 36,800 bales.
Shipments – 307,800 RB of Upland and 12,400 RB of Pima – were excellent, but the volume continues to be restricted by the longshoremen/port strike.
No doubt there is a bit of gloom hanging over the Cotton Belt, including those growers who do not plan to plant cotton. The recent rainmaker has Mid-South and Southeast growers inside for likely another week to 10 days. Most growers wanting to plant cotton must settle for peanuts, soybeans, corn, grain sorghum and/or even sweet potatoes and are not holding their heads quite as high as usual. Actually, growers in general are somewhat in the doldrums.
Land rents are marginally lower, at best, but cotton still is at a great disadvantage with respect to cost of production. The relative crop price ratios are very much in favor of other crops. Growers know that, historically, cotton has had the tendency to pull other crops out of trouble. Yet, that cannot occur this season, as plantings are too limited. Early forecasts of a 15 to 18 percent reduction in cotton plantings are becoming more entrenched.
Forward booking of seed by growers – not just cotton seed, but all row crop seeds – is down. Growers continue to hold back as if they are very reluctant to plant any crop this year. Yet, plant they will.
Maybe the blooming of the May flowers will bring about some long-needed smiles on cotton growers’ faces.