One step forward and one step backward.
Cotton prices continued with another lousy week, a poor month and even a miserable third quarter, with nearly eight cents lost in total.
Prior to the weekly close, the market had been down some 256 cents on the month and nearly 800 points during the quarter. That represents a bloody nose a couple of times over and a fuzzy head, as well. Yet, the ol’ guy is still standing, wailing away to protect the 60 cent mark.
Despite a negative technical pattern and market neutral fundamentals, the 60 cent support continues to hold, as mills step in just about 60 cents to somewhat replenish their coffers. They have been not big buyers, mind you, but rather chip away, remaining hand-to-mouth, just waiting for some reason to take a bigger bite of the pie.
As previously noted, hand-to-mouth buying has served the mills well for two years, and there is no reason to change their buying patterns, so they think. The real troublesome note for the market has been that it has not been able to hold any daily highs, even with prices so near the contract lows. While not truly challenging contract lows, far too much trading has occurred near the lows, as if there is not any upside potential for cotton.
Granted, there is a very thin level of overhead price resistance, especially from 62 to 64.50 cents. There will be a few battles to move above 64.50 cents, basis December.
The weekly export sales report was notable in that important buyers were in the mix, and the volume was a bit better than many expected. Net sales for both Upland and Pima were 121,900 bales (117,300 Upland and 4,600 Pima). Turkey was the biggest buyer at 25,900 bales, followed by Vietnam at 23,400 bales. Of course, Vietnam has become the largest market for U.S. cotton, followed closely by Turkey.
The importance of China as a shipping destination has slipped, but will continue to rank in the top five U.S. customers. China will continue to require U.S. high qualities to mix with their local cotton in an attempt to produce a marketable yarn. Adding to that need is the ongoing weather problem facing the Chinese 2015 crop that has created yield and quality losses – making the Chinese dependence on the U.S., Australia and Brazil crops even more important to the Chinese textile industry.
Shipments were 76,700 bales, with Upland at 70,500 RB and Pima at 6,200 RB. For the season, shipments have totaled 901,200 RB (842,000 Upland and 59,200 Pima). Total export commitments stand at 3,199,900 RB. This is below last year’s same time level, but was expected to be, as the annual export estimate for 2015-16 – 10.2 million bales – is well below the 2014-15 level of 11.3 million bales.
USDA field enumerators are coming out of the mostly cool, wet conditions they faced this week during their trek through U.S. cotton fields recording data to base the Department’s October crop estimate. Most have the crop estimate coming in slightly larger than the September estimate of 13.43 million bales. Yet, I have the crop 200,000 bales smaller at 13.23 million bales.
Unless otherwise noted, the estimate will not account for the rain, water and wind losses to the Southeastern crop from Hurricane Joaquin. The USDA report will be based on conditions as of October 1, and those losses would not have occurred by then. Thus, judge the report accordingly. The October report will be released at noon Eastern time on October 9.
Other major changes in the report include a 200,000 bale reduction in world consumption and a 1.5 million bale reduction in world production. World production faces a cut of a much as 3.0 million before the year is completed.
To date, the U.S. has harvested some 500,000 bales of high quality cotton, and about 350,000 bales of this has been sold. Growers should note the ever-tightening market for high quality and price accordingly. Cotton remains seven to ten cents underpriced.