Little Price Movement as Market Watches Planting, China
May 2, 2016 Cotton prices spent the week in a back and fill mode, as last Thursday’s settlements were essentially the same as the prior week’s closes. Early trading on Friday was marginally higher, but within the 62-64 cent range for active contract months.
Cotton news was very limited. But with the nearby July contract holding just below 64 cents, export sales continued to be slow. The weekly discussion centered around the expected poor weekly export sales, old news regarding the speculative attitude of the Chinese investor, the long-awaited Chinese auction that begins May 2, Northern Hemisphere planting progress, the exceptionally high Australian yields and quality, and the spotty weather in Brazil.
All of that being said, the common theme was that there was scarce cotton news the market found interesting. Thus, the market awaits Mother Nature’s action for price direction.
The current five cent, 61-66 cent trading range will continue with the bias to the upside. Both fundamentals and technical patterns support the notion of improving prices.
While long-term price improvement is expected, current prices at 63.50 and above continue to be beyond the reach of most textile operations. Weekly export sales were the lowest for the marketing season. In fact, sales for delivery of both marketing years – 2015-16 and 2016-17 – were only a combined 79,300 bales, with upland totaling only 53,400 bales. Upland sales were a marketing year low.
As stated last week, prices simply got too far ahead of demand. New York simply was chasing the Chinese market, and the ZEN had become inundated by long speculators. Just as the New York ICE can – within its rules/regulations – reel in excessive speculation, so can the Chinese futures exchanges. The Chinese market did so this week.
Export shipments were very impressive, as exports totaled 244,300 RB upland and 14,400 RB Pima. Weekly shipments continue to average well ahead of the USDA forecast for the year. Vietnam and China were the leading destinations with 53,300 RB and 51,000 RB, respectively. This represented the single largest weekly shipment total to China for the marketing year.
U.S. planting progress is marginally behind the five year average, but it is very early in the planting season and excellent progress was made this week. Finally, the big Texas area has excellent moisture as does all of the Cotton Belt – excluding the irrigated states of California and Arizona.
Australian yields have averaged between 5 and 6.5 bales per acre. Much of the cotton has been Good and Strict Middling. The Brazilian second crop (Bahia crop) has been drought stressed and suffered yield declines. However, other Brazilian cotton production has seen the gambit of weather conditions from very good to very bad.
In total, the ending of the El Niño pattern has not been kind to Brazilian cotton production. However, the lack in the availability of Brazilian high grades will be offset by the availability of Australian high grades. The price of Indian cotton has remained steady to higher as the reduced 2015-16 harvest comes into better focus. The Indian supply shortage will continue to support world prices.
The December 2016 contract traded lower on only five days during April. The upward price momentum has slowed as we move closer to the heart of the planting season in the U.S. Yet, the reduced availability of cotton outside China will offer price support.
Price support at 62 cents (61.80) should be viewed as a bottom. The market must clear the 64.75-65.50 cent level to make a run at 66.00-66.50 cents. The next objective would be 68 cents.
I was asked last week about my proofreader. To paraphrase Pogo, I have met the enemy and he is me. I am full of mistakes.
Give a gift of cotton today.
GET THE NEWSLETTER TODAY!
