Shurley: Potential Challenges to Cotton Price Optimism?
March 4, 2024 Both old crop May-2024 and new crop December-2024 futures seem to now be going through a possible correction phase over the past two weeks. Movement seems more sideways in a range between mostly 82 and 85 cents for new crop and less so but between 95 cents and $1.01 for old crop.
After two strong days on Feb. 27 and 28, old crop dropped 5½ cents to finish the week. New crop peaked at almost 85 cents on the 27th, then declined 1.82 cents the rest of the week.
The intent here is not to sound the alarm. It’s perhaps premature for that. But much has been written and said about this run-up being mostly speculative driven – not supported by underlying supply and demand fundamentals. So, if something looks like it might be a speculative sell-off, it’s worth noting.
The past week’s export report was poor. Conversations with merchants tend to suggest that demand is still weak. Export sales have fallen for four consecutive weeks. This report showed among the lowest sales of the marketing year. Shipments are doing better but are relatively flat.
To meet the current USDA projection for the 2023 crop marketing year, exports need to average roughly 288,000 bales per week for the remainder of the marketing year. Shipments have been stable but have averaged below the pace needed in recent weeks.
New crop December-2024 futures have fallen to around 83 cents and look to be in a range of 82 to 85 cents. This price level excites no one. Growers see old crop go to $1.00, and they want to give new crop that opportunity before beginning to price the new crop.
The 2024 crop is currently almost 16 cents below the 2023 crop. This “spread” has widened during this period of price run-up. Both old crop and new crop have increased, but old crop has gained relatively more. This large and increasing spread typically suggests that different economics and risk are in play for old crop vs. the new crop. So, this implies that just because old crop price behaved as it has doesn’t necessarily mean new crop will also.
At current prices, 2024 acreage is uncertain. This could support prices for now. But production could be higher than last year. Also, demand must become much less uncertain and improve.
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