Shurley on Cotton: Lackluster Week Closes on a High Note
By Dr. Don Shurley
Cotton prices (Dec14 futures) closed up 77 points to 63.81 cents/lb last week (October 24) – recovering from a rather lackluster week. Prices have trended down since closing at 65 cents back on October 13 and dipped to 62.29 on October 20.
The end of week uptick closed the week up 81 points from the previous week and is above the recent downtrend. The longer-term direction is still sideways, however, with a range of mostly 62 to 67 cents.
March and May futures prices are at a discount to nearby December – March at 62.17 and May at 63.02. This “inverted” market is a signal that the crop is in more near-term demand compared to the future. Reports suggest there is support for prices near-term due to delayed harvest in some areas and lack of producer selling due to low prices. Producers are not likely to sell at these prices, and an increased amount of cotton may go to Loan.
For the week ended October 19, the crop was 29 percent harvested, compared to 31 percent average and 20 percent last year. Most states in the Southeast were near normal or ahead of normal. But Texas was slightly behind normal, and the Mid-South was behind normal.
Fiber quality in the Southeast has thus far been very good. A summary by state shows most cotton with Color grade of 31 or better and staple 35 or longer. Three Southeastern states – Florida, South Carolina and Virginia – are averaging 36 staple. Fiber length Uniformity has thus far averaged 81 or better in all six states.
Basis in the Southeast is very good, especially for better grades – 41-4/34 is currently +25 points December, and 31-3/35 is +350 points. The Loan premium for 31-3/35 is 330 points.
The LDP (Loan Deficiency Payment) for the coming week will be 2.7 cents per lb. An LDP (or what is still commonly referred to as a “POP” payment) is received in lieu of placing cotton in loan. LDP will increase when the A-Index decreases and vice-versa. Producers may apply for LDP provided they still have “beneficial interest” in the cotton. The total of LDP plus cash price can be increased by selling cotton on increases during the week while the LDP is fixed.
Shurley is Professor Emeritus of Cotton Economics, Department of Agricultural and Applied Economics, University of Georgia