Cotton’s August Doldrums Are Officially Here
August 5, 2023 Cotton prices fought the good fight and ended the week with all 2023-24 marketing year contracts holding the 84-85 cent level. U.S. and world economic recovery signs were slight, and most of the water fountain talk centered on the demise of politics across America, not the economy.
Trying to uncover fundamental economic information specific to cotton fit the needle-in-a-haystack analogy, as Mother Nature is really all the market is watching – at least for now. Most areas have some very good spots, but more and more questionable spots are appearing on the map. Just as trouble spots were in the news last week, more and more “good crop” scenarios were uncovered this week.
That puts us back at the broken record spot, as cotton trading has found the six-cent trading range – 83-89 cents – to be an equilibrium trading range. Thus, look for that range to hold price activity for another week and likely for another month. Growers are encouraged to take aggressive pricing action on movement above 87 cents. Yet, I feel the market will make a very strong challenge at the 89-cent mark.
There remains little to no suggestion that any improvement in demand is on the immediate horizon. Price action will be based on crop size, the only fundamental in play. Nevertheless, speculative fund trading will move prices higher and lower within the six-cent trading range, adding more volatility as trading reaches either end of the six-cent range.
The market is temporarily on hold as it awaits the Aug. 11 USDA supply demand report. Traders are most interested in the first objective yield survey of the year, as well as the export estimates for the 2022-23 year that just ended this week and the export projections for 2023-24. Export activity is seasonably slow. Thus, the seemingly “poor” current sales level is not viewed as bearish for prices. Mills have inventory and are very reluctant to cover more than one quarter forward until more is known about the Northern hemisphere crop and until yarn business becomes stronger.
We note a comment made last week: “Never give up on cotton!” That was not a promotional comment, although it could have been. The point is that the cotton plant – a desert plant – can overcome bad weather, poor weather, or horrible weather. We should not expect a 15.0-15.5 million bale crop estimate. It is simply too early. The crop may turn out to be that low.
Yet, I say again, never give up on cotton. Look for a crop estimate of 16.1 million bales. The crop still can make 16.5 million bales if it can get some help.
On Call sales and On Call purchases are always important, but again, it is a bit too early to put too much weight on those ratios. Yet, it does appear that mills are deferring the price of an increased level of their purchases. That is, their pricing pattern indicates a bit of market bearishness. However, that is their normal trading position. That said, I believe mills should adopt aggressive pricing strategies with cotton at 83 cents or below.
The 83-89 cent trading range will continue. Growers will have ample time to price this year’s crop. The August doldrums have officially begun.
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