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Market Settling In as Old Crop Settles Out

Just as expected, the trade regrouped and blasted the old crop July out of the sky, driving it down to just 77 cents by last week’s end.

There may be another weak challenge of 80 cents, but not likely. On-call sales versus purchases are coming in line and, the open interest contract leader is now December.

The 80 cent mark, basis July, just simply cut off all export demand around the world. Export cancellations of U.S. growths were not as dramatic as feared, but then hindsight reminds us that price rationing has already been done. The trade has now front-loaded the certificated stocks, and first notice day is knocking on July’s door. Old crop is done for. Surely mills will continue to fix their on-call sales and exit the July contract now.

The new crop December is a difference verse, even a different song. Demand continues very active for the 2017-18 crop, and with the contract below 75 cents, strong export sales should continue. With the Chinese auction going well, it will exceed 6 million bales next week – mills are active for U.S. cotton.

Indian cotton has become very price competitive, but rains in Australia have slowed sales of that growth. Too, Brazilian crop remains a bit hard to come by. Merchants and cooperatives continue to offer U.S. styles with the idea that the expected big crop will in fact be available.

Too, while Mother Nature has played a little hard ball with getting the U.S. crop in the ground and up to an acceptable stand, it is still just May. Thus, the entirety of the 2017 growing season is still in front of us. Thus, the 71-72 cent support for the new crop December contract stands firm for another few weeks, although the weekly close was down to 72.79 cents.

Old crop July on-call sales fell to a ratio of 9:1 with respect to on-call purchases. The actual number now stands at 37,000 contacts. On-call purchases are some 4,000 contracts. Thus, unmatched on-call sales are down to about 33,000 contracts – a manageable number given that the July open interest is still above 100,000. Mills can still outsmart themselves, as they have done all year, if they fail to be aggressive with fixations, especially now that July is below 78 cents.

Export cancellations were only 48,000 RB, as opposed to the feared 100,000-200,000 bales. Too, the market is down some 1000 points since the record trading day of Monday a week ago. Not surprisingly, India and Vietnam originated the primary cancellation orders. Indian cotton has become very price competitive, and Vietnam is the largest buyer of U.S. cotton. Thus, it was expected that those two countries would have held cancellations. Again, the real surprise was that there were only limited cancellations.

Net sales totaled only 16,200 RB of upland and 5,600 RB of Pima reported on the week. Marketing year 2017-18 sales were very impressive at 236,200 RB of upland and 1,800 RB of Pima.

With few cancellations, shipments were brisk at 332,800 RB of upland and 13,000 RB of Pima. The current pace of shipments is 101% of the USDA estimate for the 2016-17 marketing season (August 2016- July 2017). USDA’s export estimate is 14.5 million bales. Thus, the potential for final shipments totaling 14.7 million bales, the pace since December 2016, remains realistic.

Again, export sales for the 2017-18 marketing year will continue strong and keep price support under this market for the next several weeks.

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