Cotton prices had a plus week with December gaining 121 points going into the weekly close at 67.55. The market found solid support all week as mills were active with price fixations and excellent sales of both old crop and new crop. Mills have demonstrated a conscious effort to fix prices now that trading has been below 68 cents. There has been no need to chase prices higher. The 65-67 cent support level held the past two weeks. Look for that price range to maintain its excellent support. Trading above 68 cents before early June appears very doubtful as mills have not expressed a desire to buy above 68 cents, basis the December contract.
The market uncovered excellent demand below the 68 cent price level and export sales and shipments have been aggressive to very aggressive during the two week fall in prices. Weekly net exports sales showed total sales of all cotton across both marketing years to be a massive 625,300 bales. This included Upland sales of 381,400 bales for 2018-18 delivery and 241,500 bales for 2019-20 delivery. Pima sales were a net minus 2,100 bales for 2018-19 and 4,500 bales for 2019-20.
The excellence of the volume is exemplified by the fact that the sales were some 80 percent more than the prior four-week average. Primary sales were to India, Vietnam, Turkey and Bangladesh. India is taking up much of the “lost export market share” that many attribute the China-U.S. trade tiff. Vietnam and Bangladesh are doing so as well. It is likely that increases relative to the trade tiff will continue for these countries, especially Vietnam and Bangladesh. Indian purchases have proven to be unusually large this year. Indian purchases decline in 2019-20, assuming the Indian crop moves higher. (Unlike last season all early rain forecasts for India have predicted a “near normal monsoon season.”) However, the U.S. has finally made inroads against the initial export loss that resulted from the China tariff. The supply demand report can be viewed at apps.fas.usda.gov/export-sales/cottfax.htm
Export shipments were better than expected as Upland shipments on the week totaled 348,600 bales while Pima shipments were 13,000 bales. Primary destinations for Upland were Vietnam, Pakistan, Turkey, China and India. Shipments to China were 42.2 million bales. Current year sales to China were 24,000 bales, but were offset by 23,300 bales cancelled. Yet, new crop 2019-20 sales to China were 19.8 million bales. Thus, it is evident that business with China is still very active. Too, increased business for U.S. cotton exports from Vietnam, Bangladesh, Indonesia, other Southeast Asian countries, and Pakistan will come about due to the direct result of the cotton textile supply chain, in part, exiting China due to its tariff policies.
Over the prior ten years, the U.S. had moved its entire textile supply chain; lock, stock and barrel, to China. The difficulties in China the past year has finally convinced the industry that it must seek new locations. Thus, it has already starting moving out of China and generally to lower cost or much lower cost situations. The move has already begun. Vietnam and Bangladesh will be the primary benefactors, but Pakistan, India and Indonesia will also benefit. To a lesser degree, even Cambodia and Thailand will benefit.
The government has released nominal information about its tariff market damage report and plans to assist growers. They are being particularly tight lipped about cotton, and will likely continue to keep quiet. It stands to reason that the package will be much more fulfilling for 2019-20 than it was for 2018-19, and it should be. Look for the trading range, 65-68 cents to remain in place, but with a slight upward bias.