Friday, June 28, 2013
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Cleveland on Cotton: High Range Possible – SW Drought Plus Low International Stocks

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Cotton prices shifted to reverse this week as international weather factors made their presence known. The Southwest U.S. drought continued to spread as rapidly as crop insurance adjustors made their way through cotton fields in that region. The Delta and Southeast made solid progress as did the big crops in India and China.

The Indian monsoon has been as positive as the Southwest U.S. drought has been devastating. Other fundamentals were sprinkled throughout the market including fresh demand at the week’s low price activity, the USDA June planted acres report and the weekly export report. Technically, the market has moved to a sideways pattern shifting from the 86-89 cent highs to the 82-83 cent lows. The 82 cent support has continued to justify the hype of its rock solid support. Too, fresh demand all but absolutely disappears on any price move up to 88 cents.

This frames the world cotton picture moving into July. However, the recently 500-600 point weekly swings will be typical over this time period as an abnormally large amount of the cotton open interest is concentrated in the December contract. Nevertheless, it is noticed that the A Index fell to only some 92.50 cents this week compared to drops to 90-91 cents during similar periods of the past months.

It is very possible that the market is attempting to work out of this sideways range to a higher range. I vote for a higher range, but others are simply indicating that either a higher or lower range is coming, commenting that technicals suggest that “something must give.”  Yet, I would be remiss if I did not say that my idea of a higher range is based on crop problems in the U.S. and the continuing decline in international stocks of cotton held outside of China. The little available high quality cotton outside of China is rapidly being depleted and this is supportive of higher New York futures as well as a higher A-Index.

The weekly export sales of Upland was seasonably low coming in at only a net of 57,000 RB for the 2012-13 marketing year. Yet, those sales were associated with the run of December back to 89 cents. More problematic however, 2013-14 sales of Upland were a net negative 7,100 RB, the first week in months of negative sales.

Likewise, for the first time in weeks, shipments were less than expected. Shipments fell sharply to 130,500 running bales of Upland and 18,800 of Pima. Total shipments have reached 12,165,227 bales. The shipment level fell below the average needed to meet the USDA estimate. Six weeks remain in the season and shipments need to average 243,182 statistical bales to reach the USDA estimate. I have been expecting shipments to run some 100,000 bales ahead of the USDA estimate, but that estimate is now in jeopardy.

Astute mills took advantage of the international currency adjustments against a strong dollar and cancelled some sales with the idea of replacing them at lower prices. However, total 2013/14 export sales have now fallen below the pace of last season with total sales of upland at 1,930,100 RB which is below the year ago levels of 2,395,900 RB.

Total 2013/14 export sales have now fallen below the pace of last season with total sales of upland at 1,930,100 running bales compared to year ago levels of 2,395,900 running bales. The recent international currency adjustments have again placed U.S. exports at a price disadvantage. The U.S. is no longer one of the less expensive crops. International mills and merchants are turning to Indian and African styles.

USDA did release its June planted acreage report on Friday and was as expected.  The report put U.S. plantings of all cotton at 10.3 million acres (10.251) including 10.025 million acres of Upland and 226,000 acres planted to Pima. Texas plantings were estimated at 5.771 million acres with Georgia plantings at 1.3 million acres, North Carolina at 420,000 acres followed by Alabama and California both with 330,000 acres. It is noted that Georgia plantings exceed those of the Midsouth.   

International currency adjustments aside the December will take another look at the high 80’s.

 

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