Cotton Prices Holding in Range-Bound Limbo
January 20, 2023 The cotton market flirted with higher prices all week, settling near the two-month highs reaching 86.79 in March and settling at 86.70 cents. Yet, prices are still well within the 10-cent trading range between 75 and 88 cents. The news appears bullish – hopefully is – but likely is more of the same range-bound news.
Chinese buying below 82 cents helped sell exports the prior week, just as it did this week. Last week’s sales data, released today, was the impetus for today’s move higher. Yet, recall that export buying occurred between 81.65 and 82 cents. Good sales were made this week, but again mostly in the low 82-cent area. Thus, the January 26 export report should reflect good sales, all made in the lows of the trading range.
The move to higher prices generated fund buying as the March contract moved above the 100-day moving average. Also of particular importance was that December moved above the 200-day moving average. Funds are always in and out of the market, but March futures will need to push 89 cents before high-level fund buying will kickstart any bullish activity. Until then, we will have to be content with the 75-to-88-cent range-bound trading.
Chinese buying over the past two weeks was associated with “low” prices as noted, but also because the Chinese New Year has just begun and extraordinarily little, if any, business will be conducted during the forthcoming 10 days.
Mills were also active in price fixing and rolling on-call sales forward. Fixing of prices was tantamount to mills saying, “The market is coming down to suit me.” Rolling of on-call sales was tantamount to saying, “There is acceptable risk in delaying fixing the price of cotton that I have contracted for, and it is likely price will move lower.” Said another way, mills will not chase the market higher, and, in all probability, prices will move back lower. That is, the price gap near 75 cents remains as major support should the current support at 81-82 cents eventually fail. There is a heavy, heavy cap on price at the 87-88 cent level.
Net sales of upland for the week ending Jan. 12 were 209,400 bales and represented a particularly good week – up noticeably from the prior week and the prior four weeks. Yet, we again note that particularly good sales were expected due to the low futures price. China, Pakistan, Turkey, Vietnam – the usual suspects – were the primary buyers.
Actual shipments were again a bit of a drag as they have been the past three months. The dichotomy is that shipments are 800,000 bales ahead of the prior year’s pace, but actual sales are 3,000,000 bales behind.
Commodity prices are still underpriced compared to the general economy. The outlook for the U.S. economy remains very weak, but grain and oilseed prices are buoyed by Washington’s desire to use agricultural produced oils and alcohol as automobile, industrial, and machine fuels. The prices of those products will support cotton prices as a necessity to support alignment of price ratios with cotton.
Growers should consider pricing cotton on any price advance above 87 cents as they are paying the carrying cost. Carrying cost will continue to increase while prices face major resistance above 88 cents. I remain bearish on 2023 U.S. planted acres (below 10.5 million).
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