Uncertainty Drives Whipsaw Price Swings

Whipsaw price swings continue to haunt the cotton market.  Such price swings, characterized by triple digit day to day trading, will continue until the U.S. and world crop sizes are better defined.  Despite concerns surrounding the West Texas crop it is difficult to go against the USDA objective yield survey.  Until they change their estimate of crop size it is questionable to challenge the USDA-NASS survey results.  As we have mentioned in prior weeks, one should accept the greatly improved yields being spun off by the new seed varieties.  The market is expecting a 19 plus million bale crop and prices will continue to gyrate within the very narrow 81-84 cent price range until new fundamental information is uncovered.  U.S.-China and/or U.S.-Turkey relations are viewed as offering the greatest potential for price variation outside that narrow price range.  Additionally, sooner or later USDA must address its Indian carryover stocks dilemma.  Yet, the price bias is lower given the state of the current trading situation with China and Turkey.  The significant downturn in the Turkish economy (government intervention) has exacerbated trading problems and production in Turkey.  Should the 81 cent price support level fail to hold, the 79 cent level should support to any sell off as world consumption continues at a record pace.


The Midsouth crop continues to lead the way in the U.S. and is set for a record yield.  Likewise, the crop in the Southeastern region has progressed nicely and likely holds some yield surprises.  If Texas performs similar to 2017 then harvested yield in the Southwest will hold up to initial estimates.  Early harvest data from China suggests that crop weathered its poor early start and will harvest a better than expected crop.


Export inquiry has been excellent, but export sales lagged for the third consecutive week.  However, early sales of 2018 crop were off to a record pace; thus, it is expected that USDA will maintain its export estimate of 15.5 million bales. Recall, forward sales made during the 2017-18 marketing season for 2018-19 delivery were at a record pace.  Net sales of Upland on the week were only 92,200 RB with the primary buyers being China-24,500 RB; Vietnam-23,500 RB; and Indonesia-15,600 RB.  Pima sales totaled 10,500 RB.  Again the U.S. and other world exporters are making very aggressive offers and no one desires to carry cotton into the 2019-20 season.  Merchants are expected to continue with very aggressive offers.   Export shipments climbed to 177,300 RB with primary destinations being Vietnam-36,900 RB; Turkey-20,600 RB; and China-15,100 RB.  Pima shipments were 10,500 RB.


Mill on-call sales continue to build and are setting up to be fundamentally bullish, but there is still ample time for mills to make fixations and end the bullish threat. Additionally, mills continue to add to their fixations, an indication that they do not want to get caught in a price squeeze similar to the quandary they faced the prior two years.  USDA will release its September supply demand report and it September crop report at noon Central Time on Wednesday, September 12.  Market bias is lower, but prices have fought to hold within the trading range.