New Cotton Price Lows, More Demand Woes
November 4, 2023 The prior week’s price rally was met with failure in this week’s trading as the nearby December futures contract fell below the important 80-82 cent support level and settled the week at 79.62 cents. This opened the possibility of another test of the lows in the 74.50 to 75.50 cents range.
It must be said, point blank – I fully expected the 80-82 cent support to hold. Thus, I missed the market!
Demand remains the principal culprit, but world military activity has pressured all financial markets lower. I have been a bit dogged for trashing the subject of demand as much as I have. Few believed me. Yet, the market is now screaming loud and clear that I should have talked louder and longer about just how bad demand is. It turns out demand is even worse than I imagined. Too, cotton demand is echoing just how poor both the U.S. and now the world economies have become. Yet, we have commented that the improvement in demand we expected by March 2023 was now as far away as the later quarter of 2024. Simply, that implies prices await the July 2024 time frame to find any significant move above 80 cents. Yet, demand was uncovered on the week, just below 80 cents.
Certainly, this is not the time to be a buyer of cotton. Yet, the trading activity does heavily dictate our major theme that growers should sell physical cotton at harvest and buy call options. Do not, no matter the region of the country, store physical cotton and expect to cover storage costs…again, no matter the region of the country. The market is set for such a strategy.
Expect the high 70s trading to continue with the dominant range between 76 and 80 cents. There will likely be trading above 80 cents, but the support at that level has been broken, and the market will spend most of its time in the high 70s.
The market is also facing the uncertainty associated with the significant unrest around the globe. Such activity slows business development and investment and adds to the challenges associated with demand for not only apparel but also most goods and services.
As noted last week, the Dow, S&P, and NASDAQ remain under pressure. As is typical, most commodities remain undervalued during such times. The cotton market will continue to be influenced by military activities, and the general effect will be bearish.
USDA will give us its November supply demand report on Nov. 9 at 11:00 am Central time. Expectations are that world trade will be decreased, as will be U.S. export sales and the forecast of the size of the U.S. crop. The Ag Market Network Cotton Roundtable teleconference will be that same day at 1:30 pm Central Time. Details for that session can be found here.
China was a major buyer of cotton during the prior week. U.S. net sales of upland were 457,100 bales – a marketing year high as China bought 324,000 bales and Mexico another 108,200 bales. However, only 10 countries made purchases. China will continue as a buyer of U.S., Australian, Brazilian, and West African cotton as those are needed to supply China’s export market for apparel goods. Recall the Trump Administration and the West European countries banned products containing Xinjiang cotton because of China’s use of forced labor. Thus, China needs imported cotton for its massive textile industry, the world’s largest.
However, weekly shipments were only 132,200 bales. The U.S. continues to fall woefully behind the pace needed to meet USDA’s current 12.2 million bale export projection for cotton. U.S. exports could slip another 400,000 to 500,000 bales, or possibly as low as an unimaginable 11.7 million bales. Export sales this low only tend to increase 2023-24 carryover supplies, increasing the bearish pressure on the market.
As world economies continue to struggle, cotton demand has not been able to gain a foothold. Consequently, the market has fallen into a new trading range and will likely spend most of its activity in the mid-70s to low 80s price range. Demand will continue to be the major detriment to any price advance.
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