Could Cotton Demand Push the U.S. to a Sold Out Position?
June 7, 2021 Finally, the filling – the price filling, that is.
Cotton prices climbed higher all week as the market sensed production difficulties across the U.S. and in the major growing regions around the globe. Then, at midweek, demand raised its beautiful head as U.S. exports sales were seasonally robust as yarn demand pressed spinners to ramp up textile production.
Global production problems have arisen in all the major producing countries. The 85-cent price resistance barrier, basis December futures, was breached. The contract settled the week at 85.88. Thus, the 85-cent barrier now becomes a prime price support level. It will be important to hold that level during the coming week’s trading.
Further, the other part of my bullish barking – demand – continued to aggressively remind traders that global cotton consumption is increasing at a much greater rate than projected. Domestic prices have risen in every cotton consuming country as mills scrambled to meet yarn demand. Cotton is becoming a scarce commodity in the eyes of mill buyers as they scramble to find the qualities needed. Both the Chinese ZCE and New York ICE had major gains on the week.
The export market remains very brisk, and U.S. cotton will all but sell out. The price effect will be considerable, and the December contract is on the verge of a 10-15 cent gain. Saying that, always remember that in the futures market, tomorrow is much more important than today. Today does not matter!
Much of the U.S. Southwest did receive the initial moisture it needed at the very last moment. Some areas did miss the moisture. However, many areas received potentially damaging rains that caused flooding and may actually delay planting beyond the final insurance related planting date. In those cases, that land may go to grain sorghum instead of cotton. The situation remains very dynamic, but much more than the normal rain-prevented plantings have and will continue to occur. It will be nearly a full month before actual plantings, and of what crop, is determined.
Additionally, it is now evident that some plantings in both the Southeast and Mid-South will not be seeded to cotton due to excessive moisture. The potential for reduced acreage has been mentioned, but it related to “last minute” plantings that would be switched to grains/oilseeds. Yet, more acreage will now be lost to cotton due to undesirable field conditions.
The potential shift in total U.S. cotton acreage has changed almost every day over the past two months and has been more dynamic than at any time except possibly in 1973. U.S. acreage could fall to 11.6 million acres – totally unbelievable, at least to me. Not only is the U.S. facing production problems, but all the other major production countries – China, India, Brazil, Pakistan and Turkey – will see reduced crops (in some countries, the 2021 production may be greater than the 2020 production, but in all countries the crop will be decidedly less than expected last month).
Too, and discussed the prior weeks, both U.S. and world cotton yields will be lower in 2021 due to some very high yielding land switched to other crops this year.
The specific point is that U.S. carryover will fall below 3.0 million bales, and likely below 2.5 million bales. Given transportation patterns, storage locations and unfilled contracts, this means that the U.S. will effectively be out of cotton. In a market sense, the country never runs out, but simply there is not any to sell. At such a point, price activity becomes very erratic, and prices can move much higher than ever expected.
While there may be 90 million bales of cotton in carryover stocks around the globe according to the current USDA estimate, a year from now stocks may likely be as low as 75 million bales and half of that could be in China – cotton of unknown age, quality and usability…but also known to be very questionable with respect to spinnability. The question arises, just how erratic might the market would be?
USDA will release its June supply demand report June 10, at 11 am Central time. The report is expected to be market neutral to slightly friendly. It will be discussed on the Ag Market Network Teleconference at 1:30 pm Central time that afternoon. Speakers include Dr. John Robinson, Kip Butts, Jarral Neeper, myself, and Pat McClatchy. To listen, call 605-313-5148 and enter code 571052. An archived recording will be available at www.agmarketnetwork.com or on Facebook and Twitter.
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