Cleveland: Market in Hang On and Wait Mode
October 1, 2017 Cotton trading held to the 68-69 cent trading level all week, as the December futures contract found limited support from demand as well as strong signals that 2017 production would come in solidly below the current USDA estimate.
Given the market’s ability to hold the 68 cent plus trading mark suggests the current 65-70 cent trading range should hold into the release of the next WASDE report on October 12. That is almost two full trading weeks away and will allow for an additional two weekly sales reports. However, the good progress of the foreign crops will likely keep the New York futures contract under pressure, with a bias of a slightly lower price level. The market is creeping lower and heading for the 67-68 cent trading spread. It should be expected to see a very, very gradual deterioration off the weekly settlement of 68.45.
USDA enumerators will be in cotton fields across the U.S., as crop conditions and yield estimates are measures as of October 1. Certainly the past two weeks have been unkind across most of the U.S. crop, as either moisture or cool temperatures have added to plant stress. Those conditions will be more widespread than wished during the coming two weeks, but the crop is still clinging to a production estimate of 19.7 to 20.2 million bales. Significant adjustments should be expected in the Southwest and Mid-South estimates, and even some changes in the Southeast crop.
Textile mills were slightly supportive of the market, as a limited number of price fixations were made and, thus, brought about a slight reduction in the spot month On Call Sales. However, unfixed On Call Sales are still massive, and this demand level will continue to support December against bearish crop size estimates or any additional bearish carryover estimates. The ratio of call sales to call purchases is a bit less than 1.5-to-1, but typically the ratio for the December contract can be 1-to-2. Therefore, the current ratio simply being positive – small as it is – is taken as supportive to the market.
Export sales continue very strong, with emphasis on “strong” and not “very strong.” Sales, even at this week’s 209,800 RB of upland and Pima combined, do not sufficiently project to the current USDA estimate of 14.9 million bales. Granted, earlier sales had previously pushed the current level of sales to 52% of the USDA projection. Yet, sales for the next marketing year were minimal, and – while only one observation – it should be viewed as posing a risk for maintaining the current export pace.
One bullish element continues to be the Chinese reserve sale. The sale was fully subscribed at week’s end and has exceeded last year’s offtake by 2.46 million bales, with one more day remaining in the yearly sale period. This year’s sale period was eight weeks longer than in 2016. Total sales to date have been 14,674,281 bales. Thus, 2017 sales should be about 14.8 million bales.
The market has been very diligent in its efforts to hold 69 cents, but possibly the 67-68 cent level will become its resting place for another month. The long range weather forecast does not bode well for the U.S. harvest. Thus, longer term, prices will have the opportunity to improve.
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