Market Holds in Face of USDA Report Adjustments
The cotton bull sat in his corner all week, consolidating his prior two week gains and bellowing for more fodder.
Cotton growers offered him a limited few bales, but are holding out for another run to 74 cents. Mills offered very few fixations and maintained their very slow price fixation pace. This, of course, bodes well for a price rally as the March contract approaches first notice day, a little more than 30 trading days from now.
Export sales proved to be healthy, but USDA’s January supply demand report held any attempted in check. The market adage – big crops get bigger – proved its accuracy as USDA added another 500,000 bales to the 2017 U.S. crop, increasing its estimate to 17.0 million bales. The very narrow three cent trading range will continue to hold between 72 and 75 cents. Price volatility appears to be increasing somewhat, as should be expected with the very large call sales position in the market.
On the surface, it appeared that the USDA January supply demand report would offer textile mills a possible way out of facing higher prices. USDA increased its estimate of the 2017 world crop – now estimated at 105 million bales – by one million bales and reduced world consumption 200,000 bales, down to 111.8 million bales. The result was to increase world carryover for August 1, 2017 to 90.7 million bales, or up 1.2 million bales over last month.
However, an analysis of the projections indicates that USDA increased its estimate of the Chinese crop by one million bales. Thus, the availability of cotton outside China was little changed. Too, with India and Pakistan having to import cotton from the U.S., this only accentuates the limitation of world cotton relative to fixation needs.
Aside from increasing the U.S. crop from 16.5 to 17.0 million bales, USDA did finally increase its export estimate. The industry has called for this increase for two months, and finally exports were increased to 12.5 million bales, up 500,000 bales over the past two months. Look for the estimate to rise another 500,000 bales over the remainder of the marketing season.
U.S. carryover was increased to 5.0 million bales, important in that, in terms of market psychology, it implies a carryover large enough to kill a price rally. It will be important for export sales to maintain their current solid pace to offset this potentially negative bearish signal. However, for the foreseeable future and likely into the mid-March trading period, the very bullish call sales ratio will continue to carry the ball for the bulls.
Weekly U.S. export sales were a net 245,000 RB, including 236,000 upland and 10,000 Pima. Vietnam, China, Turkey, Bangladesh and Indonesia were the primary buyers of upland. Shipments totaled 222,200 RB, with upland accounting for 210,500 RB of the total. Primary destinations were Vietnam, China, Turkey, Indonesia and Thailand.
The trading will continue in the 72-75 cent trading range.
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