Cleveland: Answers for the Cotton Market Are Few and Far Between
June 29, 2020 It is not a pretty picture. You may not want to read this. I do not have a solution.
The only Bullish marketing news for cotton is a backhanded slap at other row crops – at least you are not going to have to market corn or soybeans. Cotton does offer some return to management, albeit only a little. Further, I would like to think that most of what I write today will prove to be incorrect.
Yet, the white fiber is in a bit of trouble…or rather, a whole lot of trouble. The only positives are agronomic. The are no marketing positives. The market is busted.
International growths can no longer be hedged on the New York Cotton Exchange (The ICE) with the confidence that the price of cotton can be accurately discovered. The market has no carry – not even from one year to the next, or to even the year following…not even from one month to the next. The futures market values the 2022 crop – the 2021 crop and 2020 crop are all the same. Even the price of the 2023 crop can be inferred to be worth the same 59-60 cents that was the weekly close of the current December 2020 futures price (59.44 cents).
Certainly, such cannot be the case, but the market says it is.
I have forever said the market is always correct, it is just the traders and analysts that are wrong. Yet, here we are reaping the 3-4 plus bale per acre harvests the seed companies have given us, while trading volume has fallen to a modern-day low and open interest is at a six-year low. There are just not any significant entities interested in trading cotton. The market is left reflecting nothing but a day trading market.
The grower, the producer, the farmer is left out. He has no spokesman in the marketplace. He has no leverage. He only has his hat to grip in his hand as he goes abegging for a price, for something of value to exchange for his cotton. The futures market and its rule makers and its regulators have written him off. No one, no entity, no organization is going to bat for him…and no one is on the horizon.
That said, look for the market to continue to trade between the very low 60s on the high side to the low 50s on the south side.
Mill business is gradually crawling back. However, consumers still lack money, i.e., buying power. Too, the export world for U.S. cotton during the coming season is all but totally locked into whatever business that China and Vietnam will provide. A bit from Turkey, Bangladesh, Mexico, Indonesia, Pakistan and a few others will surface but, again, only a bit. The world is facing a record level of cotton supplies outside of China, or even a record level of supplies outside of China and the U.S combined.
The market is facing an improved first crop out of Brazil – a crop that has been coming to the market for some 45 days. Now, the Brazilian second crop is readying for harvest. Not literally, but almost literally, the world does not need any other cotton. It does not need the Indian crop, the world’s largest producer. It does not need the Chinese crop, the world’s second largest crop. It does not need the U.S. crop, the world’s third largest crop. Add to that the fact that the Brazilian crop, without any possibility of being stored, will find its way to the market almost immediately as it is harvested, and it is clear that world price competition for cotton will be brutal over the next 7-8 months.
As a grower from North Alabama once remarked, there will not be any new Tahoes for a few years. Bass boats either.
Despite COVID-19, China continues to buy U.S. cotton. The bad news in that is that most other countries are out of the cotton market. Consumer activity is dreadfully low. While business is slightly improving, the improvement is having to rebuild from record low levels of yarn production. Thus, any positive market impact will remain at a snail’s pace.
Net sales of U.S. cotton on the week totaled 102,700 bales of upland. The downside of that was that nearly all of it was to China – no other buyers – almost. In total, there were only five other buyers in the market.
The 2020 USDA annual plantings report will be released June 30. The average of analysts’ estimates was 13.2 million acres. The lowest estimate was 11.9 million and the highest was 13.9 million. The USDA March intentions survey reported 13.7 million acres.
A broad 13-cent trading range is in play, with the dominant range between 57 and 61 cents. It will be necessary and vital for the government to add money to the general economy once the current stimulus expires in July. Expect a similar package coupled with additional farm aid.
Give a gift of cotton today.
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