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Mother Nature, Not Bulls, Managing the Market

Cotton prices took the big hit this week that they had been advertising.

The new crop December has now seen six consecutive days of lower closes and has retreated below 70 cents. Technical signals continue to be rated as 100% sell, although the market is now very oversold and will likely see a positive close a couple of times next week.

Yet, do not look for any explosion to the upside. It is just not in the works. Crop conditions offer little price bullishness, as most areas have adequate planting and emergence moisture.

Exports failed to help promote prices this week, as U.S. sales suffered their first consecutive back to back weeks of poor sales of the entire 2016-17 season. Net upland sales totaled only 69,400 RB, and Pima sales were only 3,300 RB. India, Vietnam, Turkey and China were the primary buyers.

However, shipments remained strong, as the demand for the 2016 crop maintained its pace – as it has all year – to outperform the USDA estimate. The current pace suggests exports will total about 14.7 million bales – 200,000 above the current USDA estimate. Surprisingly, that is the pace that has been maintained since late 2016. Most did not initially feel demand could continue at such a robust pace, but the weekly shipment level never wavered. Based on a survey of mills’ third quarter needs, the pace should continue.

Further, sales for delivery in marketing year 2017-18 (August-July) continue to expand and now total near 3.5 million bales compared to only 1.7 million at the same time a year ago. Weekly sales for 2017-18 totaled 197,600 RB of upland and 12,500 RB of Pima. Thus, despite the forecast for a much increased 2017 world crop (larger by 7 million bales), U.S. export sales should dip by only 500,000-900,000 bales, as U.S. growths have been the most competitive of all world growths.

The most recent weekly export report can be found online.

Northern Hemisphere crop development has progressed in line with the five year average, with the lone exception being in India. Conditions in India have been much advanced compared to recent years. The monsoon has been very favorable, and planting progress is well ahead of the norm, much less the past two years that suffered from problematic rainfall and the late arrival/early withdrawal of the monsoonal activity. It is the expectation of a larger crop in India that correlates to the somewhat smaller level of exports by the U.S. in the coming year.

July is finally on life support as first notice day is only five trading sessions away. On-call sales continue to rapidly disappear, and certificated stocks are well placed to prevent any price squeeze. Yet, look for certificated stocks to begin to dwindle, as it is likely some have been committed for export.

Bullish signals are just not in the picture for now. The market is under the influence of Mother Nature, and she continues to smile on the prospects for increased supply.

Give a gift of cotton today.

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