A Good Week for Cotton as Prices Test 85 Cents
May 6, 2023 It was a great end to the week for cotton, but the six-month trading range remains unbroken.
Early in the week, the market tested a major resistance low, stopped on a dime, and headed north, not slowing until the July futures contract tested major resistance at 85 cents. Closing below the price resistance line after attempting to move higher sets up the coming week with more of the same back and fill trading the market has experienced the past six months – a 78-cent low and an 85-cent high.
This market has given growers more selling opportunities than any I can remember. Throughout it all, mills were highly active with fixations early in the week, and growers fed the hungry market with cash sales once July moved above 83 cents. Prices did move above the 50- and 100-day moving averages but failed to take out the 200-day moving average, which will be necessary to suggest a new trading range.
While the market made a valiant attempt to break the resistance, the 85-cent cap was just too high to scale. Thus, the 78-85 cent trading range remains dominant for July. New crop will continue within the same range as July, but Mother Nature’s moisture decision awaits. The expanded range of 70 cents to 90 cents, depending on Mother Nature, is still on the board.
Growers were given an excellent third chance to close out 2023 sales with the week-ending price rally that was based principally on:
- Higher prices across the board in China – a market that had been dead for nearly a month
- An excellent export sales report based on prior week prices below 80 cents
- A short covering rally that caught the Monday/Tuesday increase in speculative shorts off guard and blew them out of the water on Thursday and Friday.
While cash business shut down on Wednesday because prices moved higher, next week’s export sales report should be very respectable, as prices earlier in the reporting week were well below 81 cents and good sales were made.
South Texas received ample moisture going into the all-important Cinco de Mayo period. Additionally, the high plains and rolling plains of Texas, Kansas, New Mexico, and Oklahoma enjoyed good moisture, although the all-important 1N and 1S regions remain in deficit. However, the so-termed rainy season for those regions does not begin for another week, and all know the regions are famous for Memorial Day weekend million-dollar rains.
Concern regarding new crop prices is based on expectations of an increase in both U.S. and world ending carryover. The 2023 U.S crop is pegged at 16.5-17.0 million bales and U.S. exports are placed at 13.5 million bales with domestic mill use at 1.8-2.0 million bales, leaving U.S. carryover facing a 1.0 to 1.3 million bale increase.
Trivial improvement is expected in world consumption. Thus, world carryover – now at 92 million bales – could climb to 93-94 million bales. More importantly, the increase in carryover will be in countries that compete with the U.S. in the export market.
Thus, moisture conditions in the coming month will be critical to price development and set the stage for price discussions into August.
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