While staying within its newly expanded trading range, the cotton market jumped higher this week as the prior week’s sell-off uncovered excellent demand and once again shot the market back up to the top of the trading range.
This was clear evidence that the first retracement back to 66.50, basis the nearby contract, was not a fluke, and that the demand for the scarce supply of premium cotton is a serious fundamental factor shaping cotton prices. The current 61.50 to 67 cent range remains in place, and the market will likely continue range bound, with an upward bias throughout May.
Many textile mills continue to operate hand to mouth, meaning they have been very slow to book cotton for most of their anticipated needs. Export sales were strong again this week and continue to run well ahead of the comparable five year average. Yet, many mills still have not completed booking their needs for the second quarter of the year, much less the third and fourth quarters.
Generally, the 2015 harvest will not be available until the fourth quarter of the year. Thus, the lingering supply of high quality supplies must be stretched through September. Most certainly, this will require a bit of price rationing for the available supplies. The fact that merchants do not wish to deliver cotton against the May futures contract suggests that most have sold their current inventory and are beating the bushes for more cotton.
Such a market is supportive to prices in as much as the trading is always with an upward bias.
Additionally, the market is finding price support from the litany of pre-plant weather problems around the globe, ranging from not enough water in Australia and India (the forecast calls for the Indian monsoon to be mild) to too much rain on the current Australian harvest (too wet or too dry in Australia, depending on which eye is open).
While weather has not likely slipped into the market just yet, the door is creaking open for such very slowly. Mid-South and Southeast weather is beginning to get a look from the market, as growers like to planting completed by late May at the latest. Historically, the Mid-South likes to have the planters back in the shed by May 24, and that is less than a month away now.
Weather forecasters are also calling for a much wetter than normal summer from east Texas up through Virginia.
However, it is too early to write off the Mid-South and Southeast crops. Granted, the reduced acreage in the Mid-South allows growers ample time for fieldwork. However, Southeastern growers – especially in Georgia and North Carolina – could be behind the eight ball with respect to catching up with field work. They are well behind and require more open days than the Mid-South.
Should these very heavy weekly rains continue to march across the South, as is forecast, the market will take a peek a week from now and open both eyes in two weeks if the weekly hard rains continue.
Presently, the market is caught between the overabundance of Chinese stocks and the rapidly shrinking supply of premium cotton. This has made for very choppy trading the past month. Essentially, there has not been any change in the fundamentals affecting price in essentially two months. Yet, the market has consistently worked a rather wide six cent trading range between 61 and 67 cents.
This pattern should continue for another two weeks, at which time planting weather will have considerable say so about price movement.