The Thrill is Gone, The Thrill is Gone, so sang BB King. From an exciting six months with promises of greatness, the cotton market is now hanging on with all the force it can muster. The market provided growers a clear opportunity to price the 2018 crop between 88 and 94 cents multiple times and even climbed to a high near 95 cents. Yet, the thrill is gone. The opportunity to price in the upper five percent of the price range has been replaced with the opportunity to price in the upper 15% of the price range (80 cents plus). Generally, that would be considered a blessing, and it still is.
However, it must seem so unpleasant to those growers who let the mid 90’s to mid 80’s slip away without doing any pricing. Remember the market is very cold and non-personal, it always gives you the test first and the lesson afterward. The 82-90 cent trading range, a range we expected to hold, gave way this week to the lower 79-84 cent trading range. Even that requires mentioning the possibility of a low down to 74 cents, with little support below that. Technicians have switched from a weak buy signal to now a strong sell. Even the Wednesday/Thursday rally came with the warning of a dead cat bounce.
The August doldrums have finally caught up with the market. Despite the tariff controversy with China, the spat with Turkey, and the conversation the crop report, traders were very quiet on the week; almost as if the market was on vacation. The market is simply marking time as it searches for direction. Demand will remain strong and thus, the market will hunt for its rebound, although it may be slight.
Many are suggesting that the U.S. crop cannot be 19.2 million bales given the problems in Texas, Oklahoma and Kansas. However, if there was any lesson to be learned from last year, it was that the seed breeders truly have provided growers with a completely new yield plateau from which to work. Too, while yields have been advanced, quality characteristics also have as well. Last year, the industry did not believe the USDA objective yield surveys over the span of the first three reports, and only ‘accepted’ the reports as USDA continued to find big crops in every state. There can be no doubt that the USDA-NASS survey was accurate with respect to the crop potential as of August 1, 2018. What will the coming months bring? We all are waiting to see, but in the absence of a most unfriendly Mother Nature, a minimum of 19 million bales should be expected.
Nevertheless, a crop of that magnitude should be offset by strong demand. While the market is sputtering around because of the current Chinese and Turkish demand situation, both of those countries will be forced to come to the world demand table or go hungry. Neither country has ever shown any tendency to let their respective textile industry want for any lack of cotton to spin. They will come to the world market for cotton. Either way one slices the demand pie, U.S. cotton will move in the export market. Either historical export flow patterns will change or U.S. cotton will be reconstituted at various export points. U.S. cotton will move regardless of tariff issues.
Look for December to work between 79 and 85 cents in the coming month. Also, don’t be surprised to see the U.S. crop get larger.