Shurley: Cotton Bulls Continue to Run
November 15, 2021 This week’s USDA reports were mostly neutral to either slightly bearish or slightly bullish depending on your view. Regardless, prices took off anyway. There are some factors in play that production and supply-demand don’t account for or fully explain.
December 2021 futures closed up 2.83 cents to $119.38. March 2022 closed at $115.19. New crop December 2022 closed at 91.32, up .47.
Buyer bids on recaps, if not already, are moving to basis the March futures. Notice that futures prices are currently “inverted” (the more distant month is at a discount to the nearer month) all the way out through the remainder of the 2021 crop marketing year.
The implications of this are that prices will have to improve significantly and/or basis improve as well to make pricing later and/or storage a feasible option.
Basis and quality premiums have been very good for recaps. Basis on fixed forward contracts may not be as good. A producer wishing to price now to take advantage of the high market should recap or risk of the market going down until uncommitted production is in. This market appears to have limited downside risk.
Here’s a quick summary of the November USDA production and supply-demand numbers:
- The U.S. crop was raised 200,000 bales. Yield was raised from the October estimates in several states including GA, NC, TX, and VA.
- Projected U.S. exports for the 2021 crop year were unchanged.
- World production was raised 1½ million bales.
- World Use was raised 700,000 bales to 124.1 million bales. If realized, this would be the highest Use since 2006-2007.
- World beginning stocks for the 2021 crop year were lowered one million bales due to revisions from prior years. Projected ending stocks were lowered 200,000 bales.
Despite these numbers, there are some subtle cautionary tones:
- The increase in the U.S. crop is a little surprising to some. Crop conditions have slipped in recent weeks. There is concern over cooler temps and crop progress. Harvest is quite a bit behind normal in AL, GA, LA, MS, SC, and VA.
- The increase in Use is accounted for by India, Pakistan, Bangladesh, and Vietnam. There is little to no corresponding increase in imports (potential exports from the U.S.).
- China production, Use, and imports were unchanged from the October estimates.
The weekly export report will be out on Nov. 12. For the past four weeks, sales have averaged 285,600 bales per week, with shipments of 114,300 bales per week.
There are some concerns about demand weakening. USDA’s November numbers seem to refute that. A signal for growers to keep an eye on, in addition to the futures, is the basis offered. If growers are very active in selling due to high prices and if buyers get flush with cotton, that may be reflected in lower futures or basis. But right now, growers and buyers are both very active.
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