facebook_pixel

Market Bumps Up on News of Smaller U.S. Crop Numbers

USDA’s December supply demand report gave the market something to crow about this week. And caw it did.

Hopefully, the cawing will not be so loud as to bring about a murder, but the signals are lining up to signal an annual bottom in the market. Of course, I have called about six of the last three bottoms, so calling a bottom may be a bit overrated.

Price consolidation between 59 and 61 cents has been very consistent in spite of a number of seemingly bearish signals filtering through the trading ring. Too, fundamental news is beginning to line up in favor of stable to slightly higher prices.

The huge surprise in the report resulted from USDA lowering Texas yields – and therefore, the U.S. crop – by 500,000 bales, mostly all in Texas. Typically, such a change generates a similar change in exports (consumption). However, in lowering the U.S. crop to 15.9 million bales, USDA left exports unchanged at 10.0 million bales and reduced ending stocks the same 500,000 bales, dropping it to 4.6 million.

The implication is clear – consumption will not be deterred by the smaller crop. Thus, there is a global demand shift in favor of U.S. cotton, and the implication is a relative higher price.

Now, I am not suggesting there is additional money for Christmas, but I do note the current technical buy signals in the nearby March contract. Coupled with the passing of the peak harvest period in the Northern Hemisphere, the strategy of selling the physical crop at harvest and buying calls to participate in rising prices is in the beginning stage of reaping a market gain.

While USDA’s take on world supply demand continues to point to the burdensome problem of world stocks, it raised world carryover 600,000 bales, up to 108 million.  But consumption was lowered some 1.2 million bales, down below 113 million. Thus, the world stocks-to-use ratio is now near 95 percent – a very unhealthy statistic for any significant price rally.

However, that does not tell the story of useable stocks, the demand for quality cotton, the demand for U.S. cotton and the Chinese style free market.

The shortage of quality cotton continues to haunt the market as events in the Southern Hemisphere continue to erode the outlook for that very important supply of high quality cotton. Many of you are no doubt tired of hearing my preaching about quality. Yet, it is this situation that will support both the U.S. and world cotton prices. Too, it is the same quality issue that will lead to more imports of U.S. cotton to China.

The list of technical “buy” signals as of the weekly close included the 10-day and 20-day moving averages. Granted, the 100-day moving average has not signaled a buy, but other indications point to a limited rally.

The market hit a monthly high this week, and the tight price consolidation trading phase lends itself to higher trading. One could argue that the strength in the U.S. dollar is a bearish signal, yet export commitments are above 75 percent of the USDA export estimate for 2014-15. Too, export shipments continue to hit new marketing year highs. Thus, with price volatility very low, the March contract speaks of a rally.

Additionally, do not forget the seasonals. As noted last week, the market is nearing a period that calls for a seasonal rally. How important are seasonals? I always told my students that seasonals were the single most important notes they should scribble on their hands before taking a test.

The 61 cent area, basis the March contract, offers overhead price resistance. However, penetration of that level will offer a move to 63 cents. A successful penetration of 63 cents offers a 65 cent market. But let’s not get too far ahead of ourselves.

 

Topics:

Leave a Reply

Market Analysis Stories
Market Analysis

U.S. Sales Booming to Meet Bullish Demand

November 17, 2017

Cotton appears to be caught in a battle between supply and supply. And that keeps prices well positioned to stay where they are.

Market Analysis

India and Frost Combine to Prop Up Market

October 27, 2017

India’s plan to keep more of its cotton for domestic use, plus a potential freeze in West Texas, propped up the market during the past week.

Market Analysis

Bears Growling on Harvest and Demand Challenges

October 22, 2017

Although current trading activity represents a bearish price outlook, Dr. O.A. Cleveland still believes the 65 cent price support will hold. . .even though more experts are abandoning that position.

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.

Around The Gin
Product News

Bayer Looking for FiberMax One Ton Club Growers for 2017

November 16, 2017

Cotton growers who produce an average of 2,000 lb/A on 20 or more acres planted to FiberMax varieties in 2017 are eligible to be part of the 13th annual FiberMax One Ton Club.

Product News

Monsanto Delays NemaStrike for Additional Review

November 2, 2017

After finding cases of skin irritation, Monsanto is pulling its nematode seed treatment NemaStrike for further product review.

Product News

Intrepid Trio: Naturally Balanced Nutrition in Every Granule

November 1, 2017

Intrepid Trio contains three essential nutrients for cotton plants.

Product News

Save Time, Increase Efficiencies with Mixmate

November 1, 2017

Mixmate from Praxidyn is a precision chemical mixing system for small farms to large enterprises.

Product News

Crumpler Ironworks & Fabrication

November 1, 2017

Crumpler Ironworks & Fabrication is committed to providing the highest level of service, honesty and integrity, regardless of project size.

Product News

Delivering Proven Performance Across the Cotton Belt

November 1, 2017

Seed varieties, traits and crop protection products from Bayer deliver proven performance to growers across the Cotton Belt.

Product News

Growers Continue to Count on Americot and NexGen

November 1, 2017

Americot is dedicated to working with cotton growers throughout the Cotton Belt to provide elite performing NexGen varieties within the marketplace.

Product News

Deere Adds New Narrow Track Versions to 9RX Tractor Lineup

November 1, 2017

John Deere has added three new 9RX Narrow Track Tractors, expanding its lineup of high-horsepower machines.

Latest News
Market Analysis

U.S. Sales Booming to Meet Bullish Demand

November 17, 2017

Cotton appears to be caught in a battle between supply and supply. And that keeps prices well positioned to stay where they are.

Market Analysis

Increased Cotton Demand Moving the Market

November 11, 2017

A bullish supply demand report for November proves that demand moves markets. And demand for cotton has resurfaced.

Market Analysis

Cleveland: Yields, Quality, Consumption Still Rising

November 4, 2017

Reports of high yields, premium quality and growing consumption are keeping prices at the higher end of the trading range.

Market Analysis

India and Frost Combine to Prop Up Market

October 27, 2017

India’s plan to keep more of its cotton for domestic use, plus a potential freeze in West Texas, propped up the market during the past week.

Market Analysis

Bears Growling on Harvest and Demand Challenges

October 22, 2017

Although current trading activity represents a bearish price outlook, Dr. O.A. Cleveland still believes the 65 cent price support will hold. . .even though more experts are abandoning that position.

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.