Cotton Prices Settle into Mid-80s as the Wait for Demand Continues
July 30, 2023 First, I’ll see you at the South Alabama Crops program in Fairhope on Aug. 1 if the doors are wide enough for me to wobble through.
Now, cotton is hot. Prices shot into the upper 80s, stopped just at their major resistance point, and then fell back to the mid-80s where they will call home for August if not September as well. Fundamental news will continue to come from the supply side of the price equation. Demand is not worth writing about.
Cotton’s saving grace is that the very hot daily temperatures are answered with very favorable nighttime temperatures. Yet, the first ten days of August promise to be even too hot for cotton, a desert plant.
The Mid-South and Southeast are reported to be yield-stressed due to the shallow tap root syndrome, generally implying a very unfavorable planting season, a wet May, and initially a problematic June. Much of the crop energy is still devoted to plant and root development instead of fruit development, i.e., the necessity of an extended growing season. Thus, the supply side of the price equation will continue to dominate price activity.
The U.S. crop could fall to 15.0 million bales compared to the current USDA estimate of 16.5 million bales. The mid-90s portend a crop that low. Likely, however with an extended growing season across the Belt, prices could slip back to the very low 80s. Yet, a crop as low as 15.5 million bales could see trade into the low 90s.
DO NOT expect a 90-cent trade. In fact, be very happy to see a trade as high as 88-89 cents. Growers are strongly advised, as commented last week, to become aggressive sellers above the 86-cent level.
Again, this is a supply driven market. Bullish markets are simply demand markets, not supply markets. There is a baby bull working in the market now, but an outstanding growing season this fall could easily make just another steer of him. The trading range has eased a bit higher. Look for the six-cent range 83-89 cents to become the dominant trading level for August.
Remember, the cotton plant thinks it can live forever, unlike the corn or soybean plant. The grain/oilseed plants know they can live only one year/one growing season. Mother Nature engineered cotton to live forever, and, as such, the plant is constantly working to first improve itself and secondly to reproduce itself (developing seed = seed produces lint).
This crop will not approach a record yield, and current suggestions indicate as much as a 5% reduction in yield. However, a very good August and September could greatly improve yield potential. It’s the old market adage that tells us tomorrow’s weather is more important than today’s. The cotton plant is content to continue developing a solid root system but will do so only at the expense of boll development, which effectively reduces yield. Thus, a long growing season is necessary to harvest anything near an average crop.
Not only is the U.S. crop size very problematic, but so are the crops in India and China. The very bearish world carryover level of 95 million bales can be significantly reduced in one year only by the supply side of the price equation. The market performed this past week as if such were occurring. We still do not expect demand improvement until March, or possibly the second quarter of 2024.
More evidence is needed to justify a successful challenge of the 88-89 cent price resistance. Growers should adopt aggressive pricing strategies above 86 cents.
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