Shurley: Where Did All the Bullish Optimism Go?
March 29, 2021 The economic and market fundamentals have not changed all that much, if any. Yet, cotton is now struggling to somehow maneuver its way back to 80 cents.
Since the peak at near 88 cents a little over a month ago, new crop December futures has since dropped 9 cents – and that’s thanks to a 200 point rebound on March 26! Prices (December futures) had closed down six straight days and 7 of the last 10 days before the triple digit rebound.
Support at 80 cents has now been compromised which, technically, opens the door for price to move lower. But, after a near 400-point meltdown on March 25, the next day’s 219 point recovery is a good sign that maybe further decline will not happen. As I already pointed out, the market fundamentals remain good.
USDA’s Prospective Plantings survey-based report of what farmers say they intend to plant this year, will be released on March 31. Given this recent decline in price, the numbers could be of questionable value and impact on the direction of the market.
The survey was taken while December futures were still 80 to 85 cents. USDA’s acres planted estimate presented during the Outlook Forum in February was 12 million acres. Industry projections have been mostly 11.5 to 12.5 million acres, with those estimates affected somewhat by recent lower prices.
There’s probably no denying that price below 80 cents changes things. It’s just a matter of how much and – given we’re now getting into April – how much of planting decisions can and can’t be changed at this point. This will obviously vary from area to area and farm to farm.
New crop cotton has declined 9% for the month of March. Corn and soybeans have been level to down just slightly. So, price-wise, cotton has lost ground. Also, peanut contracts have increased to compete with cotton.
This week’s export report (for the previous week ending March 18) was good but not fantastic. Sales were 286,500 bales, with Vietnam being the largest sales destination. Shipments were 332,500 bales with top destinations of China, Pakistan, Bangladesh and Vietnam. Perhaps the report figured into the market’s late week rebound.
USDA’s April supply/demand numbers come out on April 9. I have read of some concerns beginning to surface that Demand/Use could be weakening due to increasing COVID numbers. If prices are to recover back over 80 cents, USDA’s monthly numbers must continue to show growth in Use, and this must be confirmed by good weekly exports.
The drought outlook for Texas is not good. If acres planted end up below 12 million, if weather concerns mount and, particularly, if the outlook for Use is good, these fundamentals should support prices at current levels and higher.
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