Shurley on Cotton: Prices Attempt to Stabilize, But Still Show Weakness
By Dr. Don Shurley
Over the past two weeks, prices for Dec14 futures have continued to slide, but tried to stabilize in a tight band of mostly 67 to 68.5 cents. Typically when you see an extended narrow trading range like this, it indicates that there is not much pressure/interest to push prices either direction on current news. Until July 24, it seems.
On July 24, prices suddenly broke down 203 points to close at just over 66 cents. This may signal yet another round of weakness in prices.
This week’s export report showed a second consecutive week of strong 2014/15 sales. Unfortunately, it wasn’t enough to prevent the 200 point decline in Dec14 prices. It has been expected that good export sales at these now lower prices would be the medicine to what ails this market, or at least slow the bleeding. This recent decline tells us that other factors/concerns are obviously also at play.
Reports seem to suggest that the decline was due to forecasts for slower than expected global economic growth and forecast for higher than expected acreage and production of cotton in India.
Crop conditions have declined slightly for three consecutive weeks (as of July 20). In reality, the condition of the crop has changed little the entire season, hovering around 3.5 (mostly fair to good). Present crop condition, on average, is running ahead of last year. While crop condition has been relatively unchanged, Dec14 prices have declined 10 cents, suggesting other significant factors are at play.
Crop condition on August 1 is not always a reliable predictor of yield. A crop condition of 3.5 could suggest a yield of 820 to 830 lbs per acre. But some years have been “outliers,” and have been much better or worse than this. The current USDA estimate is 16.5 million bales at 816 lbs/acre. The August estimate will be the first of the season based on actual producer survey and conditions. An August estimate that would push the crop higher will likely continue to add downward pressure on prices. Future price direction will depend on any supply shocks globally and demand news.
Shurley is Professor Emeritus of Cotton Economics, Department of Agricultural and Applied Economics, University of Georgia