Cotton Prices Continue to Amaze and Confuse

Cotton has become the contra-nowhere market...where she goes no one knows.  Yet, rest assured, the market is right.  It the market soothsayers like myself that are wrong.  The very narrow four cent trading range, 81-84 cents, basis December futures, remains in place.   It is teetering as if to be Humpty Dumpty.  The downside bias also remains in place.  The September supply demand report did little to spook the market lower, albeit was slightly bearish. 

 

Talk of renewed trade discussions with China provided a very minor spark but, that burned out as quick as it was mentioned.  Even after USDA’s September supply demand report was released the four person AgMarketNetwork.com analysts all surmised the market hi-low trading range over the next month would be from the very high 70’s to the low 90”s.  That’s most likely correct, but the group typically has a bit narrower range.  One can drive a truck through a range that wide. The market has simply not been able to break below 80.50 cents or above 85.00 cents in over a month. The daily triple digit whipsaw swings have continued to surface almost every single day.  Look for more of the same.

 

Bearish factors facing the market include a larger than expected U.S. crop as well as U.S. trading concerns surrounding Turkey and China.  I have reputably indicated that the saber rattling between the U.S. and China favored the U.S.  However, the market psychology has been a bit bearish since the dispute arose.   Yet, the dispute will not affect demand, only of what boat the cotton is delivered.  China’s textile economy needs U.S. cotton, one way or another.  That need is enhanced now that the Australian crop has shrunk.  It’s just a matter of time.  Yet, the dispute could linger for a year or slightly longer.  Too, the Turkish economy, dreadfully in the pits, has found its governmental policies have only exacerbated the cash shortage across the country.  Turkish mills have simply not been able to pay for cotton despite the fact that mills have orders.  They simply lack the hard currency to pay for imported cotton.   

 

On the market’s bullish side is demand, a necessary ingredient for higher prices.  However, with the growing season little more than half done, the market remains focused on the supply side of the price equation rather than on demand.  

 

USDA’s September supply demand report included multiple changes, but left the overall situation very much unchanged.  U.S. production was increased some 450,000 bales and now stands at 19.7 million.  Exports were increased to 15.7 million bales, up 200,000 bales and carryover was increased 100,000 bales, up to 4.7 million (as of July 31, 2019).   Export sales stand at 60 percent of the total USDA estimate compared to the average of 40 percent for this time of the year.

 

World ending stocks were increased marginally as the increase the world production was somewhat offset by lower beginning stocks.  USDA made a small reductions in Indian beginning stocks resulting from a revision in prior year’s data.   Most analysts continue to feel USDA has still underestimated historical Indian consumption.   World production was increased nearly 1.5 million bales with China, up 1.0 million bales; and Brazil and the U.S. up about 500,000 bales each.  This was partially offset by a half a million bale decline in the Australian crop.   World production was increased to 120.5 million while world consumption was estimated at 127.9 million bales.  Thus, the world production consumption gap was 7.4 million bales and world ending stocks were projected at 77.5 million bales, down from the year’s beginning stock level of 83.8 million bales.  The USDA supply demand report can be viewed at https://www.usda.gov/oce/commodity/wasde/latest.pdf

 

Most feel the U.S. crop will be lower in the October report as a result of Hurricane Florence. That appears logical, but it is still early enough in the growing season that crop maturity could enhance yield prospects in the Midsouth and Southwest. It is September.  Cotton needs dry weather the remainder of the growing season.  Rain would be detrimental.   U.S. crop production can be viewed at