The Dog Days of August – and Cotton – Are Upon Us
It happens every year, every August – even in July sometimes. I had written it off this year, thinking the market was too exciting, but the Dog Days of August have surfaced.
The market takes a break every year, just waiting for the crop to play a few cards and provide direction for price activity. And the doldrums – the dog days – finally hit. Actually, they have been with us for two weeks now, and will be around at least another three weeks at a minimum. Nevertheless, there is behind the scene activity. We may just not know it yet.
The U.S. crop is struggling to hold USDA’s estimated 15.9 million bales, and the world’s projected 102 million bales could be slightly lower. We could take 300,000 bales off the U.S. estimate and 1.0 million bales off the world crop, but such subtraction would not be particularly meaningful to the market. Rather, it mostly reflects my bias for a bit higher equilibrium price – again, not much, just a bit higher.
Thus, the near term trading range continues, bracketed by 68 cents on the bottom and 71 cents on the top. Failure to hold 67 cents opens the 65 cent door. However, until there is more crop definition, the 71 cent top will not be penetrated in any significant way.
The market is coming to grips with the realization that the upper 70s of three weeks ago was too high of a trading level, as funds have continued to exit the market. Actually, the managed money has withdrawn from the agricultural markets, and prices have toppled. Midwest cash corn is near par with cash wheat where cattle feeders have switched to wheat. Cotton had been the darling of the fund managers, but no more. Managed funds have taken their major stake out of the cotton ring and moved to the sidelines.
The Chinese speculative funds have also made a significant withdrawal, as the Chinese cotton market has sold off generally in tune with New York. As the markets consolidate around the 68-71 cent trading range, traders will monitor crop progress and await the September and October WASDE reports to provide price direction.
The tropical storm season is in full swing in the U.S. The storm that is currently making its way to the Gulf could range from a non-event to a storm causing major crop damage. The Mid-South and Southeast crops will have to contend with such a possibility for the next two months.
The Indian monsoon brought improved planting conditions, and the government reports that the crop area is only some 8% lower than the year ago level. Planted area had been feared to fall as much as 12%, but the revival of the monsoon has once again encouraged plantings.
Mills continue to provide the bulk of price support, as purchases/fixations have been active in the 68 cent area. Export sales and shipments have been better than most expected. U.S. export sales over the past two weeks have totaled nearly 550,000 bales for 2016-17 marketing year delivery. China has been a major buyer of upland and Pima. Vietnam and Turkey continue to battle for the top spot of being the leading buyer of U.S. The Pakistani crop has borne the blunt of Mother Nature’s difficulties this season, and local mills have been very active buyers of U.S. grades and need more.
World consumption has been underestimated all year, and now the realization of improved Chinese offtake is being supported by stronger mill use across the Indian Subcontinent. World consumption is on target to climb some 2.0 million bales more than the current USDA estimate of 111 million bales. The ICE certificated stocks continue to dwindle and are now down to only about 50,000 bales. Most of those stocks will be shipped overseas.
The news media’s fixation with “Egyptian cotton” continues. One has to wonder where Target and the highly respected Wall Street Journal have been the past 20 years. Out of nowhere, it seems that products labeled “Egyptian cotton” contain little, if any, cotton produced in Egypt.
That is certainly of no surprise, as that has been the case for two to three decades. Actual cotton grown in Egypt – the highly prized, fine filtered, extra-long staple – has generally been sold to foreign spinning mills for decades. It was/is too valuable to use in domestic spinning mills. This has been well more than common knowledge to all in the cotton industry for years.
Two decades ago, the world’s cotton industry, including the U.S., was scrambling to export cotton to Egypt so the yarn could be called “Egyptian cotton.” After all, it was manufactured in Egypt, even though it was not grown in Egypt. Long ago, the phrase “Egyptian cotton” ceased to refer to cotton grown and produced in Egypt, but rather to simply “good quality cotton.” Cotton spinners, manufacturers, sourcing agents and retailers have known this for years.
So, out of nowhere, some retailer – Target – decides to shift blame from themselves to another. The highly respected Wall Street Journal even joined the fray, suggesting that the Indian-based textile firm was duping the public. The firms making the noise are duping the public. They and their sourcing agents, advertising and marketing firms created the “Egyptian cotton” phrase. Don’t lay blame on the cotton industry.
Recall, I suggested we were in the Dog Days of August, and the inactive market gave me time to reflect on yet another attack on cotton by the U.S. and global retailers who love to promote acid-based chemical fibers. It even came real close to home this week.
My own Mississippi State M-Club sent us a letter proudly informing us that our new club shirts would be 100% polyester, but that the price would be the same. The letter specifically stated that no cotton would be used.
I will not have one of those Adidas plastic shirts, but my ball team and the Texas A&M team will be dressed in 100% polyester – never mind that the heat index for both will likely be in the 100s.
What has happened to the cotton producing states? The King has abdicated, and I don’t mean Elvis! Yet, give Texas Tech credit. They actually have a football game that actively promotes the cotton industry.
Give a gift of cotton today.