Cleveland on Cotton: 81-82 Cent Price Floor Remains Solid
Cotton prices found little direction this week closing essentially unchanged from the prior week. Yet, the market did manage to negate the very short term negative factors at week’s end. Thus, the nine month rather wide trading range continues, still proving to offer rock solid support at the 81-82 cent price floor. However, as has been the case for three months, some continue to warn that prices will dip to near the 78 cent level.
The market continued to trade blind with respect to fundamentals with USDA shut down. However, with the reopening of the government on Thursday, USDA will begin its export reporting after the market’s close today. The regular daily, weekly and monthly reports are all back on schedule as are all other services and activities.
Thus, the trading range continues…and I continue to believe that both the high and low in the December contract are in place; most probably for March 2014 contracts as well. This week’s support can be traced to the decision by the Chinese to open new import quotas as well as the solid demand uncovered by last week’s selloff below 84 cents. Note that the USDA export sales report to be released today will be for the week ending September 26 and not reflect current market activity or even that of the past three weeks.
The U.S. crop may have climbed 300,000 bales as excellent late September and October weather gave new life to much of the crop, including some dryland Texas acreage that had been near zeroed out by insurance adjustors. Midsouth yields are well above what was initially expected and reports from the Southeast promise five percent more than expected. Of course we are missing the USDA October crop report and must wait until November 8 for the next report as harvesting is now well underway throughout the U.S. and the Northern Hemisphere.
However, reports from China and India tell of a multitude of cotton that is below premium grade. It is the lack of premium grades that caused the Chinese to open new import quotas. This will spur the movement of the remaining U.S. old crop as most other premium growths are already sold out. Too, any early harvested new crop will be eligible for these quotas, but the Chinese are requiring delivery by January. Immediate shipment to China is in strong demand. With New York futures near 83 cents Chinese inquiries are very active. Additionally, as New York moved lower the world basis has gone down, somewhat holding cash prices stable.
Too, the push for quality and the demand for high quality cotton has pushed, pulled and otherwise forced PIMA prices higher and higher. Six week ago Chinese ELS prices were about 210 cents per pound. Today, the price is between 265 and 270 cents as the Chinese are looking to import as much as 350,000 to 450,000 bales. Typically, these prices should be near the top of the market.
The market is making serious challenges to the lower end of its trading range. There is risk to 78 cents, but I continue to hold to the 81-82 support holding.