Market Holding in Positive Territory, Yet Lower Prices Likely

While cotton prices slipped this past week, the market’s price support – 60.00-60.30, basis December futures – held firm. Thus, the traditional dead cat bounce was averted…at least for now. Yet, expect December trading to continue to challenge that support level and work diligently to move below 59 cents.

A confirmed close below 60 cents will verify that the rally was nothing but a dead cat bounce, thus opening the way for a fall to 55-56 cents. Yet for now, the bulls must be satisfied with a ten-session gain of 194 points. Granted, the market settled the week only some 40 plus points above its breakout, yet it is still in positive territory.

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The week was characterized by subpar export sales and export shipments, improved crop estimates in the U.S. – especially in the Mid-South and Southeast – and a noted amount of grower price fixations on the December contract. Thus, growers did take some advantage of the 400-point equities offered during the New York ICE futures advance.

The export sales report continued to verify weekly cancellations by Chinese mills. This week, Chinese mills cancelled another near 40,000 bales in export sales. Additionally, some cotton sold to Hong Kong was cancelled, but instead shipped to Vietnam. Net export sales of upland were only 85,000 bales, while Pima sales totaled 15,900 bales. Upland shipments included 166,600 bales, and Pima shipments were 7,200 bales. Primary destinations of upland were Vietnam, Indonesia and Mexico. Some 18,800 bales were shipped to China – a clear indication that not all sales will be cancelled.

Somewhat troubling was that new sales for the 2020-21 marketing year were only 19,300 bales. The primary buyer was Bangladesh, and small sales were made to Colombia, Costa Rica and Mexico. Weekly sales have been noted to Pakistan and will continue to be noted. It has been suggested that Pakistan could import as much as two million bales, but it is thought that estimate is highly overstated. Yet, if the current trading range holds, then there may well be validity in that news.

Export commitments for the marketing year now total approximately 8.6 million bales, of which some 1.5 million have been shipped. Given the market’s interest in China, it should be noted that remaining U.S. sales to China total about 1.74 million bales. To date, only 119,100 bales have been shipped to China. There are another remaining 46 weeks in the cotton marketing season.

The current trading range stretches from about 60.25 to 64.50 cents and can be kept alive only by some unforeseen production news. Otherwise, it should be expected that the prior 56-60 cents trading range will come back into play.

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