Beneficial rains in both India and the United States kept pressure on cotton prices during the week as the December futures contract, in a rare event, settled the week unchanged at 68.59. Thus, the market continues to consolidate June loses in the breakout below 71 cents, down to the 66 cent level.
As indicated last week, Mother Nature continues as the primary market fundamental driving price activity. Rainfall amounts in both India and the U.S. are being closely observed. Demand – particularly U.S. export sales – is a close second, as Vietnam and China continue to exhibit a strong demand for U.S. growths. As stated, it is still very early in the Northern Hemisphere production cycle. Thus, the beneficial moisture, especially in Texas, was instrumental in pressuring the market early in the week.
Therefore, some of the bullishness found last week was faded this week. The 66-69 cent trading range appears to be the dominant trading arena for the next month.
Texas received excellent moisture during the week – its second in three weeks. Thus, the discussion surrounding the size of the U.S. crop again centers on 19 million bales as the market moves to the July 12 supply demand report.
Additionally, the monsoon intensified and continued its spread across the large Indian crop and was very beneficial to the standing crop, as well as the area needing to be planted.
In the July report, look for USDA to increase U.S. exports for the 2016-17 crop by 100,000-200,000 bales, with a subsequent decrease in U.S. carryover. Yet, do not be surprised if USDA waits for the 2016-17 marketing season to end before making any changes. However, it is likely that U.S. carryover will fall to 3.0 million bales. Granted, this does reflect a rather robust final four plus weeks of shipments. Yet, mills indicate their third quarter needs exceed current inventory.
Changes to the 2017-18 marketing year estimates will center on demand issues, with the exception of historical revisions USDA deems necessary. Notably, look for an increase in world demand through an increase in Chinese demand. Chinese open end spinning, as well as Xingjian mill activity, has progressed beyond target levels.
U.S. export sales for the week ending June 29 totaled a robust 194,200 RB of upland and 1,800 RB of Pima. Sales for the 2017-18 marketing year included 297,200 RB of upland and 4,100 RB of Pima. Next marketing year export sales continue to record the third fastest start in the past 30 years. China and Vietnam continue as aggressive buyers for both marketing years.
Growers are advised that the new crop basis should show considerable strength as the harvest season approaches. New crop export sales exceed inventory by some one million bales. Thus, the first million bales (plus sales that continue to be made) of new crop must be marked for the export to meet third and fourth quarter mill demand.
Consequently, the market will continue to closely watch weather conditions and crop development. Again, look for the 66-69 cent trading range to prevail.
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