facebook_pixel

Plexus: Market Showing Signs of Life

New York futures rebounded since our last report of November 20, with March gaining 156 points to close at 60.42 cents/lb.

After closing the previous 14 sessions in a very tight band between 58.75 and 60.08 cents (a range of just 133 points), March started to break out to the upside on December 4, boosted by a firmer cash market and possibly some spec buying.

The situation in the cash market continues to be tight, especially for high grades. Large quantities of U.S. and Indian cotton remain sidelined by government programs, making it difficult for shippers to meet nearby commitments. Other origins like Brazil, Greece or Pakistan are unable to fill the void, as unsold supplies consist mainly of unsuitable qualities.

A lot of buyers have therefore been turning to West Africa, which currently has the cheapest high grades available. However, with about half of the crops committed in Burkina, Mali and Ivory Coast, the January shipment window is rapidly closing, and February won’t be far behind. It is therefore not surprising that Turkmen cotton attracted some buyers, with an estimated 55,000 tons being sold at auction.

There is hope that U.S. cotton may finally start moving out of grower hands, since the Adjusted World Price (AWP) will be set at 46.36 cents for the coming week, up from 46.06 cents. It looks like the AWP is turning the corner, as several factors point to further increases ahead.

First of all, thanks to today’s rally in the futures market, we should see a higher daily AWP right off the bat as we start the calculation for next week. Also, with the “nominal” Pakistan quote likely to be replaced by Tanzania anytime soon, it should result in an immediate 40-point jump of the AWP.

Once growers become convinced that the loan deficiency payment won’t increase any further, they will turn some of their cotton over to merchants, thereby greatly improving liquidity in the cash market. At this point, it is difficult to gauge how much cotton will become available, as this largely depends on what the AWP does over the coming days and weeks.

Most of the cotton coming out of the loan will be applied against existing domestic and export commitments, which have already reached nearly 11 million bales for the season (3.8 domestic/7.0 export). However, any cotton that forms part of a long position will likely be hedged with either futures or options. Therefore, the greater the amount of cotton streaming into the marketing channels over the coming weeks, the greater the need for short hedges.

If the trade were to increase its relatively small net short position of 3.5 million bales over the coming weeks, speculators would have to take the other side. According to last week’s CFTC report, speculators were 2.1 million bales net short, with outright short positions amounting to 7.7 million bales. This large contingent of spec shorts certainly has the potential to act as a bullish catalyst, especially if the technical picture were to improve along with a somewhat more optimistic fundamental outlook.

The recent drop in the price of crude oil is a very positive development that will provide the lethargic global economy with a much-needed shot in the arm. If the current level of around $65-70 per barrel could be sustained, it would save oil importers over $500 billion a year – roughly $40 billion every single month. Since the list of top oil importers is basically synonymous with that of top cotton consumers, including China, India, the US, Europe, Japan and Southeast Asia, we feel that there is a good chance for cotton consumption to get a decent boost.

Unlike various rounds of money printing by Central Banks – which have mainly benefitted debt ridden financial institutions and wealthy individuals – the drop in energy prices spreads across all layers of the economy. It is akin to a tax cut that leaves consumers with some extra dollars in their pockets every time they fill up their gas tanks or pay their utility bills. This should eventually lead to an increase in discretionary spending, including textiles and apparel. It couldn’t have come at a better time either, as we are in the midst of the all-important holiday shopping season.

So where do we go from here?

With a lot of U.S. cotton still frozen in the loan, the AWP will have to move higher in the short term in order to free up much needed supplies. Since U.S. domestic and export commitments have already reached nearly 11 million bales, price pressure may not start to build until the majority of the U.S. crop has been flushed out of the loan and excess supplies are beginning to weigh on the market.

However, the longer the current situation drags on, the better the odds for prices to hold. Seasonal lows typically occur between November and January. If the market escapes that window unscathed, things may start to look up due to lower planting intentions and an improving demand picture. Speculators have the power to tip the scale to either side. At the moment, it seems more likely that they will reduce their net short than add to it.

THE ABOVE IS AN OPINION, AND SHOULD BE TAKEN AS SUCH. WE CANNOT ACCEPT ANY RESPONSIBILITY FOR ITS ACCURACY OR OTHERWISE.

Source – Plexus

Topics:

Leave a Reply

Market Analysis Stories
Market Analysis

Cotton Prices Settle, Poised to Climb Again

February 16, 2018

The market’s downside move appears to be over, ending a three-week downturn.

Market Analysis

Cotton Futures Nudge Higher, Despite Forecast for Rising U.S. Sowings

February 13, 2018

Cotton futures nudged higher, despite a much-watched survey on U.S. sowings showing a seven-year high, as the estimate came in

Market Analysis

Still Optimistic, but Fundamentals Do Rule the Market

February 3, 2018

Last week’s price correction was overdue, yet the market is still positive. But it’s best to remember that the simple fundamentals of supply and demand do rule the day.

Market Analysis

“Here We Go Again” as Market Preps Another Run

January 26, 2018

The price breakout above 80 cents continues to build its base in the very low 80s as it prepares for its next challenge to the 85 cent level.

OA Cleveland
Market Analysis

Could Quality Shortage Push Cotton to a Dollar?

January 19, 2018

Cotton’s roller coaster price trip is on, and it’s really just beginning. The steep incline is in front of us.

Market Analysis

Shurley: Things to Consider as Prices Climb

January 19, 2018

The reasons for better prices seem fairly obvious, but the strength of the current uptrend has been surprising. Looking ahead, growers need to keep certain factors in mind.

Market Analysis

Cleveland: The Bull Will Continue Charging

January 12, 2018

Multiple market factors are at work, with demand continuing to lead the way to higher prices. That means the bull market will keep charging ahead.

Around The Gin
Product News

Bayer Shares the Risk with Cotton Farmers

January 26, 2018

Bayer offers replant, crop loss and yield protection to growers who plant FiberMax and Stoneville cotton seed.

Product News

Americot Adds New Sales Support in GA, KS and TX

January 23, 2018

Americot has expanded its sales support team in Georgia, Kansas and the Rolling Plains of Texas.

Product News

Indigo Offers Premium for Indigo Cotton Production

January 9, 2018

Indigo Ag has announced a new program that offers significant price premiums for U.S. cotton growers who contract to grow Indigo Cotton.

Product News

New Bayer Varieties Focus on High Yield, Adaptability

January 5, 2018

Bayer releases five new FiberMax and Stoneville varieties for introduction in 2018.

Product News

New PhytoGen TRiO Guards Cottonseed Investment

January 3, 2018

New PhytoGen TRiO seed treatment helps provide early season protection for young cottonseed from diseases, insects and nematodes.

Product News

Americot Adds Seven to Sales, Research Teams

December 20, 2017

Americot has added seven new sales and research associates to the company’s staff across the Cotton Belt.

Product News

Seven New Varieties in Deltapine Class of 18

December 11, 2017

Seven new varieties – including five Bollgard 3 XtendFlex offerings – join the Deltapine product lineup as the Class of 18.

Product News

Special Roundup Ready PLUS Incentives for Arkansas

December 7, 2017

Monsanto is offering a special Roundup Ready PLUS Crop Management Solutions platform in Arkansas for 2018 for growers planting XtendFlex cotton and Roundup Ready 2 Xtend soybean varieties.

Latest News
Market Analysis

Cotton Prices Settle, Poised to Climb Again

February 16, 2018

The market’s downside move appears to be over, ending a three-week downturn.

Market Analysis

Cotton Futures Nudge Higher, Despite Forecast for Rising U.S. Sowings

February 13, 2018

Cotton futures nudged higher, despite a much-watched survey on U.S. sowings showing a seven-year high, as the estimate came in

Market Analysis

NCC: Multiple Factors Offer Mixed Signals for Cotton

February 11, 2018

According to NCC economists, a few key factors will shape the U.S. cotton industry’s 2018 economic outlook.

Market Analysis

Talking Curveballs, Credibility and Carryovers

February 9, 2018

The February WASDE report served up a curve ball that caught the industry off guard. For the sake of USDA’s reputation, I hope they are correct.

Market Analysis

Still Optimistic, but Fundamentals Do Rule the Market

February 3, 2018

Last week’s price correction was overdue, yet the market is still positive. But it’s best to remember that the simple fundamentals of supply and demand do rule the day.

Market Analysis

“Here We Go Again” as Market Preps Another Run

January 26, 2018

The price breakout above 80 cents continues to build its base in the very low 80s as it prepares for its next challenge to the 85 cent level.

Market Analysis

Could Quality Shortage Push Cotton to a Dollar?

January 19, 2018

Cotton’s roller coaster price trip is on, and it’s really just beginning. The steep incline is in front of us.

Market Analysis

Shurley: Things to Consider as Prices Climb

January 19, 2018

The reasons for better prices seem fairly obvious, but the strength of the current uptrend has been surprising. Looking ahead, growers need to keep certain factors in mind.

Market Analysis

Cleveland: The Bull Will Continue Charging

January 12, 2018

Multiple market factors are at work, with demand continuing to lead the way to higher prices. That means the bull market will keep charging ahead.

Market Analysis

Cleveland: Don’t Ignore the Gift Horse. Feed the Market!

January 7, 2018

Don’t get caught looking a gift horse in the mouth. Cotton prices are at a profitable level for growers, and the market is asking to be fed.

Market Analysis

Shurley: New Year Cotton Policy Update

January 5, 2018

Recent legislative action in Congress could potentially bring cotton back under Title I commodity protection. Dr. Don Shurley explains the details.

Market Analysis

Shurley: December Report Seals the Deal

December 19, 2017

Based on the December USDA Crop Production numbers, any notion of this 2017 crop getting below 21 million bales seems unlikely at this point.

Market Analysis

It’s a Wonderful Day in Cotton’s Neighborhood

December 15, 2017

With apologies to Mr. Rogers…it’s a wonderful day in the neighborhood, and the cotton market has been mine.

Market Analysis

With Prices Rallying, It’s Time for “Significant Action”

December 8, 2017

The long-awaited rally above 70 cents appeared to mature this week. For those not already priced at 75 cents, it could be time to take significant action.

Market Analysis

Prices Push Above 70 Cents as Demand Remains High

December 2, 2017

Driven by tightening world stocks and led by an ever-increasing world consumption, cotton prices continue to move higher.