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Market Struggles with Black Swans and Bears

The market is doing all but totally satisfying the 50-centers, as it now hangs its hat just above the 57 cent peg. That failing, the next price support levels sit at 56 cents, 55 cents and 52 cents.

Another week of record export sales was not enough to turn the market around as the world financial markets and respective currencies have collapsed against the U.S. dollar. The dollar has reached a ten year high and is finally clear of its quarter of a century downtrend. In light of the booming dollar, one is tempted to brag on just how bullish the cotton must really be, were it not for the dollar’s strength. It is well established that the cotton market moves in reverse with the dollar. Yet, weak as the cotton market is, the currency market for the U.S. dollar has been wildly bullish.

I spoke last week of the unheard event that all world currencies were down against the dollar – something that never happens. It is still going on and getting more and more notice. The most accurate and succinct observation about all of this is simply to give it a name. The world financial industry has named it a “Black Swan” event. Simply put, we do not know what caused it, and we do not know what it is or when/where/how it will be fixed. Nevertheless, the ability of old crop cotton, basis New York futures, to hold near the 60 cent level is phenomenal, given the strength of the dollar and the currency collapse of every non-English speaking market.

Maybe this will be the kiss of death for the bears. I have continued to say the bottom was in. Clearly it is not, but we are within two or three cents. That is, obviously the market is now doing its job. In fact, I believe it will now be richly rewarded for such.

As mentioned last week, the job of the market is not only to reduce the current surplus of world and U.S. cotton, but also to reduce 2015 world plantings. The low prices are, and will continue to uncover more and more demand for cotton. Mill consumption is increasing. The consumer is ready, and his pockets are primed for cotton-rich goods. Too, now that the new crop December 2015 New York ICE contract has, in two weeks, lost its 65 cent claim and is now trading at 60 cents, planted acres will drop more than expected as recent as three weeks ago.

If fact, world plantings need to be reduced some twenty percent this year. They will not be. However, the 10-13 percent reduction projected a month ago is now too low. World plantings will likely be off 15 percent. However, the closer the reduction comes to 18-20 percent, the quicker happy hour will come and the sooner the market will return to the 75 cent level, basis New York.

As much as I would love to discuss selling for 80-85 cents or higher, I cannot. The market will not show any sympathy. In fact, the market will try to get you to sell at the bottom each and every year.

U.S. exports sales scored another market year record high this past week and are in step to challenge that again on the coming week. That would be three consecutive weeks. Current prices have all the usual markets buying U.S. cotton. Too, the world financial difficulties are setting the stage for even more U.S. exports.

Weekly net sales of Upland were 470,300 bales and 15,000 bales of Pima. China, Turkey, Vietnam, Mexico and Indonesia were the primary buyers. China purchased 174,500 bales and Vietnam purchased 158,200 bales. Shipments were a solid 226,200 RB of Upland and 2,700 RB of Pima.

World consumption is expanding and will help check any further slide in price.

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