Cotton prices made a run higher this past week, as export sales and inquiries continue to provide support to the market.
The May contract moves to first notice day and July becomes the spot month on April 24. The continuation of strong export sale inquiries coupled with the decertification of stocks (now down to 300,959 bales) and the final day for mill fixations on the May contract helped push the expiring spot month contract briefly above 80 cents. While the rally was short lived, it does continue to point to the necessity of mills remaining alert and very attentive to their July fixations.
The market is trying to push lower, but export interest and the fixations continue to allow for potential upward movement in the July. I have discounted that potential, but it simply has not gone away, and the market continues to flirt with the 79-80 cent level. Market technicals are mixed with one chart pattern pointing higher and another lower. Thus, the market continues to be preoccupied with mill fixations and active export of U.S. cotton.
Export sales and shipments remained brisk as net upland sales for the week ending April 13 were 226,300 RB. Pima sales were 10,700 RB. Sales for 2017-18, upland and Pima combined, were 118,300 RB. Primary buyers were China, India, Turkey and Vietnam. Shipments were 358,700 RB of upland and 8,500 RB of Pima.
If this level of sales and shipments continue for the remaining 16 weeks of the marketing year, then both will exceed the current estimates carried by USDA. Earlier in the year, I had suggested that the pace of export shipments suggested the U.S. would sell out its inventory of 2016 crop.
Such a phenomena of selling out a full year’s crop never happens. Thus, I fell in line with the doubters. The current pace cannot be maintained, as it would mean more would be sold than is in inventory. Therefore, unless other country growths become available soon, the market will, in fact, be forced to ration what remaining U.S. old crop remains.
That, of course, can be done only by higher prices.
Even at current futures prices and an ever more unfavorable basis, mills continue to flock to the U.S. Granted, the pace has slowed slightly over the past two weeks. However, mills continue to be very active buyers on a day-to-day basis. Too, the on-call sales to purchases ratio for July has jumped back up to near 14:1, and mills can no longer roll to another contract month.
Essentially, all July on-call contracts must now be fixed on the July contract without any option to roll. Thus, this ratio will again be watched with keen interest. Nevertheless, the funds did not show as much interest in returning to the market this week.
New crop prices, as discussed the past months, continue to be well supported by old crop prices. The July contract will continue to keep the December 2017 contract in the 73-75 cent area for another month, despite the solid planting progress being made across the northern hemisphere. Thus, U.S. plantings are expected to meet or exceed the USDA planting estimate of 12.4 million acres. Some estimates are as high as 12.6 million.
Moisture has been very timely across the Cotton Belt, and this has been beneficial to the planting progress. Small acreage of dryland planned for cotton may actually be switched to grain. Growers still are looking to reduce cash expenses. Those growers voice that moisture is now sufficient enough in some areas that only one more rain would be needed to make a profitable grain crop.
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