Market Still Sluggish, But Don’t Believe Demand Rumors
Cotton added another muggy week to its trading linage, easily trading 100 points higher and then 100 points lower. It cannot generate any clear direction. Thus, the whipsaw price action continued, and only the day traders seemed to care.
The market is in search of new fundamental information with talk of crop size. Some saw lower, while others say higher. But no one is willing to stick their neck out with a firm commitment.
Too, the demand word has snuck back into the price equation, as some appear to suggest that demand is waning. Don’t believe that for a second. Some mills are talking down demand in hopes they can talk the market lower. The world is easily on pace for a record world high demand, and the real question is not about demand strength, but rather more about just how big demand will be.
A lack of trading volume continued to plague the market, as most traders concentrated on the Labor Day long weekend. The extremely narrow three-cent trading range – 81-84 cents – is grabbing all the of the market’s attention, as most traders just played in the market all week simply to attempt to stay awake. In the short term, it seems that any new fundamental news will have to come from foreign activity, either Australia, China, Brazil or India.
The September 12 USDA supply demand report will likely confirm the prior month’s big U.S. crop. Despite problems in the Southwest region, the record/near record yields for the Mid-South and Southeast are expected to be confirmed. Possibly a little bit of drier weather would be welcome to allow the heavy-loaded top crop to finish out. The market will get another dose of just how successful the seed breeders have been in elevating both yield and quality characteristics of the U.S. varieties.
Too, despite the U.S., Chinese and Turkish trade rhetoric, cotton will continue to flow from exporter to importer, and cotton consumption will not be slowed. At worse, there may be a detour or two through the traffic flow pattern.
Exports of U.S. cotton will lead the way. Just three weeks into the 2018-19 cotton marketing year, U.S. upland export commitments are already at 60% of the USDA export estimate. The average for this time of year is just 38%. Too, foreign mills have had a heavy hand in supporting the market, as they have been very active with fixing their near term on-call sales positions. Yet, on-call sales remain mildly supportive of the market.
Should a similar pattern continue into the 2019 calendar year, then on-call sales could become a bullish factor in the market. However, it is too early to suggest so at this juncture.
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