facebook_pixel

It’s a Wonderful Day in Cotton’s Neighborhood

With apologies to Mr. Rogers, it’s a wonderful day in the neighborhood, and the cotton market has been mine.

What a roll! Despite the bearish interpretation of the past two WASDE reports, price action on ICE has clearly demonstrated that price decisions should be focused on the declining level of world stocks and the ever-increasing world demand. Yet, it is difficult not to focus on “today’s” fundamentals suggesting on the big U.S. carryover. However, that is why the WASDE is released monthly. It offers a dynamic and a fresh look at fundamentals and instills in us that we must constantly and critically review the world supply demand situation.

With the bulk of the U.S. crop demand coming from the export market, the issue becomes one of world demand, world carryover and world trade. Those overshadow the traditional importance of focusing on U.S. carryover. Too, mill demand for U.S. growths, due to specific country supply and demand issues, is increasing with respect to other growths. The U.S. carryover, traditionally a bellwether indicator of price activity, is not the key price indicator it has been the past several years. Demand has surfaced as the key indicator.

Many will suggest that export demand has been strong the past two years, and I agree. Yet, world demand has surfaced as the key price indicator. Too, I am of the strong opinion that USDA will eventually increase its 2017-18 world demand estimate some 1.2 to 2.0 million bales and reduce its estimate of Indian carryover. (This could be done either by increasing 2017-18 demand or by adjusting demand several years back, but likely both. USDA has become more proactive in adjusting historical estimates. Note this month’s adjustment in historical Indian consumption. I do hope they continue that endeavor.)

The market has suggested that the USDA reports were more bullish than most expected and have solidified the market’s quest to trade a 70.50 to 78 cent trading range. That being said, we should expect trading within the range to be volatile, with most of the trading in the 72 to 76 cent range.

The market continues to be supported by excellent export sales and the mills’ desire to buy cotton on-call at the very positive basis levels offered by U.S. merchants and cooperatives. In kicking their pricing decision down the road, mills have amassed an exceptionally large, near-record large on-call sales position. This continues to offer excellent price support to the market and will continue to do so. Total on-call sales now stand at 14,748,400 bales on a crop of 21.6 million bales. That can be discounted by the some 4 million bales that will not meet certification grades. Thus, these on-call sales may be even more bullish than I suggest.

Returning to the demand side of the price equation, weekly export sales totaled a net 259,700 RB of upland, 10,200 RB of Pima and 49,700 RB of upland for 2018-19. Thus, sales were exceptional and verify why I have continued to indicate that the world will need another 20 million-plus bale crop from the U.S. in 2018 and 2019. Upland shipments were solid at 166,600 RB.

Earlier, we tweeted that 76 cent calls should be sold, taking the profits on the calls purchased a month ago, and that 75-76 cent physical fixations should be made with the intention of 1) reestablishing the calls between 72 and 73 cents, and 2) buying calls to replace the physicals once the March contract fell back to the 72-73 cent level.

Growers should look to purchase July calls. We have long recommended the selling of physical cotton and replacing it with July call options, ever since Joe O’Neill, president emeritus of the New York Cotton Exchange, popularized the strategy in the late 1980s. That advice has proven to be stellar in almost all years. The total gain has far, far surpassed the very limited number of years when a profit was not made.

Granted, some growers will want to hold their high grades, since the quality premium will be substantial. However, they will face storage charges which will likely erode much, if not all, of the premium advantage.

It is a close call, but selling physicals now and purchasing a 3-cent out-of-the-money July call option once the market falls back to the 72-73 cent area should prove to be the most profitable, especially for growers that bought calls some two months ago.

Give a gift of cotton today. And Merry Christmas, Happy Holidays and Happy New Year!

Topics: , ,

Leave a Reply

Market Analysis Stories
Market Analysis

Shurley: The March to 80 Cents

April 23, 2018

With prices nearing 80 cents, it’s an opportunity to price part of your expected 2018 production and/or add to previous sales.

Market Analysis

Strong Demand, Drought Concerns Pushing Prices

April 14, 2018

Thanks to mill demand, shrinking quality stocks and increased drought concerns in the Southwest, cotton continues to post gains in spite of the selling pressure created by rolling positions to the July contract.

Market Analysis

Market Holds in Face of Tariff Rumblings

April 8, 2018

World consumption continues to support prices, but the mere suggestion of tariffs makes speculative fund managers nervous and increases market volatility.

Market Analysis

Cleveland: Prices Rally on USDA Acreage Report

April 1, 2018

USDA’s annual Prospective Plantings report pleasantly surprised the market, as seen by the price rally for cotton following the report’s release.

don shurley
Market Analysis

Shurley: This is Now USDA’s Number for Cotton

April 1, 2018

In my opinion, USDA’s March 30 Prospective Plantings report gets us much closer to what will eventually be the acres planted number.

Young Cotton Plant
Market Analysis

Cleveland: Start Pricing This Year’s Crop

March 24, 2018

Plant, plant, plant continues to be the motto. But it’s also time to add price, price, price to the discussion.

Market Analysis

Demand, Weather Concerns Driving Strong Trade

March 16, 2018

The market seldom sees a three-year price stream so favorable.

Around The Gin
Product News

FiberMax Honors One Ton Club Growers for 2017

April 17, 2018

The FiberMax One Ton Club recently honored 188 cotton growers who qualified for the club with their 2017 harvest results.

Product News

BASF Adds Engenia Spray Tool to Aid Applications

April 16, 2018

A new easy-to-use resource puts critical weather requirements for applying Engenia herbicide in one convenient location.

Product News

Reduce Timing Guesswork for Cotton Planting

April 16, 2018

Bayer’s online Cotton Planting Forecasting tool can help growers determine the optimal planting window to improve their chances at securing a strong stand.

Product News

Deltapine NPE Program Begins Class of 19 Evaluations

April 9, 2018

Nine Class of 19 variety candidates will be in growers’ fields this year as the Deltapine New Product Evaluator (NPE) Program kicks off its eleventh season.

Product News

Americot Expands Research and Sales Teams

April 5, 2018

Americot has added six new team members to the company’s research and sales staffs.

Product News

Greenleaf Introduces TipGuard Nozzle System

April 5, 2018

Greenleaf Technologies has introduced its new TipGuard System to protect spray tips from contact damage.

Product News

New BASF Reward Program for AR Growers Facing Dicamba Ban

March 27, 2018

BASF has revised its Grow Smart Rewards program to provide Arkansas growers alternative weed control solutions during the dicamba application ban from April 16 through October 31.

Product News

DuPont Vydate Products Fully Available for 2018

March 15, 2018

DuPont Vydate brand insecticide/nematicide products – including Vydate C-LV for cotton – will be fully available for sale and use during the 2018 growing season.

Latest News
Market Analysis

Shurley: The March to 80 Cents

April 23, 2018

With prices nearing 80 cents, it’s an opportunity to price part of your expected 2018 production and/or add to previous sales.

Market Analysis

All Eyes on the Southwest as Contract Periods Shift

April 20, 2018

Mother Nature’s willingness to drop water on the Southwest plains will dictate price movement, as the May futures contract expires and July becomes the spot month.

Market Analysis

Strong Demand, Drought Concerns Pushing Prices

April 14, 2018

Thanks to mill demand, shrinking quality stocks and increased drought concerns in the Southwest, cotton continues to post gains in spite of the selling pressure created by rolling positions to the July contract.

Market Analysis

Shurley on Cotton: More Tariff Talk

April 9, 2018

The jury is still out on whether or not the “verbal war” between the U.S. and China will actually result in tariffs, and what the impact on cotton will be.

Market Analysis

Market Holds in Face of Tariff Rumblings

April 8, 2018

World consumption continues to support prices, but the mere suggestion of tariffs makes speculative fund managers nervous and increases market volatility.

Market Analysis

Cleveland: Prices Rally on USDA Acreage Report

April 1, 2018

USDA’s annual Prospective Plantings report pleasantly surprised the market, as seen by the price rally for cotton following the report’s release.

Market Analysis

Shurley: This is Now USDA’s Number for Cotton

April 1, 2018

In my opinion, USDA’s March 30 Prospective Plantings report gets us much closer to what will eventually be the acres planted number.

Market Analysis

Cleveland: Start Pricing This Year’s Crop

March 24, 2018

Plant, plant, plant continues to be the motto. But it’s also time to add price, price, price to the discussion.

Market Analysis

Demand, Weather Concerns Driving Strong Trade

March 16, 2018

The market seldom sees a three-year price stream so favorable.

Market Analysis

Shurley: Pulling the Trigger on the 2018 Crop

March 16, 2018

Producing a cotton crop ultimately commits you to also sell the crop. But at what point do you say the price is “good enough?”

Market Analysis

Multiple Factors Driving Cotton’s Price Growth

March 9, 2018

The fundamentals of supply and demand – among other factors – continue to drive cotton prices toward the high 80s.

Market Analysis

The Market’s Advice: Plant, Plant, Plant!

March 4, 2018

As world and U.S. ending stocks continue to shrink, growers have an opportunity to price the 2018 crop in the low 80s.

Market Analysis

Trucking Issues Limiting Timely Cotton Movement

February 24, 2018

Demand continues to exceed expectations. But new trucking regulations are putting a damper on timely movement of cotton and other ag products.

Market Analysis

Cotton Prices Settle, Poised to Climb Again

February 16, 2018

The market’s downside move appears to be over, ending a three-week downturn.

Market Analysis

Cotton Futures Nudge Higher, Despite Forecast for Rising U.S. Sowings

February 13, 2018

Cotton futures nudged higher, despite a much-watched survey on U.S. sowings showing a seven-year high, as the estimate came in