Cotton Market Essentially Unchanged, as Chinese Activity Increases
October 18, 2013 Cotton prices found little direction this week, closing essentially unchanged from the prior week. Yet, the market did manage to negate the very short-term negative factors at week’s end.
Thus, the nine-month, rather wide trading range continues, still proving to offer rock solid support at the 81-to-82 cent price floor. However, as has been the case for three months, some continue to warn that prices will dip to near the 78-cent level.
There is risk to 78 cents, but I continue to hold to the 81-to-82 cent support holding.
I continue to believe that both the high and low in the December contract are in place, and most probably for March 2014 contract, as well. This week’s support can be traced to the decision by the Chinese to open new import quotas, as well as the solid demand uncovered by last week’s selloff below 84 cents.
With USDA shut down, the market continued to trade blind with respect to fundamentals. However, with the reopening of the government on October 17, USDA will resume its export reporting, and all regular daily, weekly and monthly reports – as well as all other services and activities – are back on schedule. Of course, we will miss the USDA October crop report and must wait until November 8 for the next report, as harvesting is now well underway throughout the U.S. and the Northern Hemisphere.
The U.S. crop may have climbed 300,000 bales, as excellent late September and October weather gave new life to much of the crop, including some dryland Texas acreage that had been near-zeroed out by insurance adjustors. Mid-South yields are well above what was initially expected, and reports from the Southeast promise five percent more than expected.
Reports from China and India tell of a multitude of cotton that is below premium grade. The lack of premium grades has caused the Chinese to open new import quotas. This will spur the movement of the remaining U.S. old crop, as most other premium growths are already sold out. Any early harvested new crop will also be eligible for these quotas, but the Chinese are requiring delivery by January. Thus, immediate shipment to China is in strong demand.
With New York futures near 83 cents, Chinese inquiries are very active. Additionally, as New York moved lower, the world basis has gone down, somewhat holding cash prices stable.
The push for quality and the demand for high quality cotton has also pushed, pulled and otherwise forced Pima cotton prices higher and higher. Six weeks ago, Chinese ELS prices were about $2.10 per pound. Today, the price is between $2.65 and $2.70 cents as the Chinese are looking to import as much as 350,000 to 450,000 bales. Typically, these prices should be near the top of the market.
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