This Week’s Cotton Market: Much Ado About Not Much
June 1, 2020 The military command of “March in Place” remains the standard order for the cotton market.
There was limited and non-aggressive price movement all week, yet nothing happened. Trading volume did little more than create a big yawn. Yet, the cotton market continues to perform more favorably than either the soybean or corn futures markets.
The July/December inversion continues to hold, but only by a few points. Thus, the market still reflects the immediate demand for cotton in the U.S. export market. Nevertheless, the export market remains weak due to the world textile slowdown, but business is advancing.
It is refreshing to see apparel sales beginning to show positive consumption numbers. Too, a slight improvement in yarn movement was also noted. It’s merely a situation of being able to claim that carryover stocks have peaked. Too, consumer confidence has regained its strength and is above its 2016 level under President Obama. Yet, prices have been swamped since the arrival of the coronavirus.
World stocks outside of China are at record levels, meaning that the world export market will continue to be highly competitive – and more so than in the past 5-7 years to say the least. Unfortunately, we expect the current trading range – 55.50 to 59.50 cents – to remain. First Notice Day for the July contract is some three weeks away and, doubtfully, there will not be any fundamentals emerge to shake the market out of that range.
The weekly U.S. export sales report for the week ending May 21 showed net sales of only 44,600 bales of upland and 10,100 bales of Pima. China and Vietnam were the major buyers, while only a total of only eight countries were in the market for cotton. This was only about half of the typical number of countries buying cotton.
Additionally, while there was a total of 111,000 bales in weekly sales, cancellations brought net sales down to the aforementioned 44,600 bales. Too, of the 111,000 bales sold, 98,900 bales were sold to China and Vietnam. An additional 171,900 bales were sold for the next marketing year, 2020-21. Thus, mills continue to be energetic about buying for next year – energetic, that is, but not aggressive. Mills are facing a very favorable price (abnormally low) and continue to suggest they will buy more.
Shipments remained on track to reach USDA’s target of 15.0 million bales, and momentum is building to ensure that target is reached. Primary destinations for the week were Vietnam, China, Pakistan and Turkey. Yet, the market’s major concern is whether or not shipments of prior sales will actually be made to China. China has actually purchased some 3.2 million bales during the current marketing year, accounting for almost 20% of all U.S. sales for the year. U.S. shipments for the current marketing year total about 11.1 million bales of the 15.0 million bale target. The shipment pace is some 11% above last year’s pace.
Currently India and Brazil are gaining export strength as economic conditions in those two countries have made those two growths the most competitive in the world – both below the quoted price for U.S. export styles. COVID-19 has become widespread in those countries, forcing the basis for those two growths lower in an attempt to gain foreign currency to help boost the respective economies.
Again, I expect the current price trading range – roughly between 55-60 cents – to hold into the June and July WASDE reports.
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