“Muddy” Cotton Market Going Nowhere Fast
July 14, 2023 Folks, I do wish I could tell you the cotton market is on the verge of jumping three, four, five, or even 10 cents higher. Not so. Trading is still just stuck in the mud going nowhere – and going nowhere fast.
The USDA July supply demand report was bearish and called “very expected” by analysts. Yet, prices have traded generally higher since the report’s release. More important, mills continue to express that downstream demand is terribly slow, and their respective buying habits will continue to reflect the lack of business. Additionally, they indicate that they will not build any inventory of yarn. Too, a few still have yarn in inventory and report it to be moving very slowly.
Overall, comments from spinners continue to replicate the already worn-out comments about poor demand. Thus, the very stale five cent 78-to-83-cent trading range will likely continue in the near term, while the wider 76.50-to-86.50-cent trading range is almost certainly locked in until some significant market fundamental is uncovered. Given that demand is not expected to change until late first quarter 2024 or even into the second quarter, those favoring higher prices must look for some supply news to shock the market higher. There are simply just too many negative demand factors facing the market. However, it will likely be at least into September until any supply side market shocks can be expected.
While consumer spending remains ahead of projections – and that could be viewed as positive for apparel sales – it should be noted that apparel sales have fallen. Thus, continued consumer spending has not gone for apparel goods. Mortgage payment delinquencies are rapidly increasing as is U.S. credit card debt. Both are at record or near record levels. The European Union is in the midst of a recession. Thus, any hope of improved demand for cotton is extremely limited.
Again, improved demand awaits late first quarter or into the second quarter of 2024.
In its July cotton supply demand report, USDA decreased its estimate of world consumption by some 500,000 bales, down to 116.5 million bales. World production was essentially unchanged at 116.8 million bales. However, other adjustments led to a near two million bale increase in world cotton carryover for 2023-24, up to 95 million bales.
Reduced consumption in four of the five largest cotton consuming countries (China, Bangladesh, Vietnam, and Turkey) reflect the slide in cotton demand and thus, the reason it is so difficult to become favorable to increased cotton prices. Nevertheless, supply shocks to the market could push December futures up to 88 cents, but no higher. Remember, that is a “could.”
Funds continue to favor cotton on drops below 79 cents. Too, mill price fixations are just below 78 cents and lower. Thus, bears will have to be overly aggressive to force prices below 78 cents. Yet, such a drop should find enough buying to push prices back up to the 81-to-82 cent level. Likewise, prices should be expected to ease to 83-to-84 cents on a sporadic basis. Yet, in the near term, each such rally will fail, and prices will slip back to 81-to-82 cents.
The narrow five cent trading range, 78-to-83 cents, will persist.
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