Agfax Buzz:
    December 14, 2013
    cotton-picker-dferguson-12122013-feature

    Rose On Cotton: China Could Have A Hard Time Reducing Its Stockpile

    AgFax.Com - Your Online Ag News Source

    By Louis W. Rose IV, PhD, MBA

    To obtain a free trial of the more comprehensive and up-to-date Rose Report daily edition or to learn more about our other cotton analyses and analytic services visit: http://www.rosecottonreport.com/.

    World carryout, per the WASDE report, for 2013/14 came in at 96.41M statistical bales vs the 95M expectation while world carryout outside of China rose 1.2M (53% S/U ratio) to 39.1M. This does not constitute a tight S&D, although the southern hemisphere crop projections can practically be applied to 2014/15.

    US production was reported about 200K bales shy of expectations (about 100K north of ours), but carryout was unchanged at 3.0M by virtue of an unchanged 10.4M bale export projection. Hence, the report was, in effect, neutral to bearish, yet the following day, the market reacted in a bullish manner.




    A portion of the trade’s discounting of the report was, most likely, the expectation of another strong export report on Thu, Dec 12. And the report was strong (179K RBs for all cotton). Although less than the 4-week rolling average, it far exceeded the needed pace to meet the 10.4M export projection.

    Export shipments for the sales period, at just shy of 200K RBs, supported the market, as well. Continued decreases in certificated stocks also allowed the WASDE report to be discounted.

    The current rally is largely speculative, we think, as the out months have failed to keep pace with Mar, but it has been beneficial to producers who rolled their on-call commitments forward. However, speculative rallies, with little nearby demand or fixation potential, can evaporate very quickly. We suspect nearby business has faded dramatically as price has increased, and selling pressure from producers that rolled their on-call commitments will also provide selling pressure.

    Looking forward to next week, the weekly technical analysis is positive; however, fundamental problems exist.

    The tightness of nearby US stocks may be alleviated in the short-term as cotton is classed and delivered to merchants. In China, the CNCRC reserve release off-take, while much higher than last year’s levels, is still less than robust.

    And, China has raised its benchmark for sliding scale quota imports to approximately $1.12/lb for 2014 and imports will be taxed at an increasing rate as import prices deviate further southward from the $1.12 mark.

    While the extent of the bearishness of this announcement could be mitigated by subsequent announcements from CNCRC regarding gross levels of import quota to be issued for 2014, the adjustment relays that China wants to draw down its reserve stockpile and that it anticipates expected lower prices in 2014 will hamper its efforts to do so.

    Next week’s export report will most likely feature fewer net sales that last weeks, although we expect it to exceed the 99K RB/week pace required to meet the current projection as a weaker US dollar and stronger Indian rupee partially offset higher futures and average world prices. Shipments could increase significantly, which could be viewed as supportive.

    Eventually, increasing world stocks outside of China will wear on the market, as well.

    Looking further out, Rabobank has said that it expects the cotton price to average near 73.00 for Q4 of 2014 as world production increases to near 120M statistical bales on the stabilization of supplies of competing crops. We have no problem with their Q4 projection, but we think that US ending stocks will tighten via increased exports and, perhaps, reduced production.

    Our most recent analysis suggests a total US crop of 13.0M. And, a smaller US carryout will accentuate the inevitable competition for acres as planting season approaches. We think that Dec 14 can trade in the mid-80s prior to planting, with the remainder of the season left to the weather market and a cumbersome world S&D.

    For the coming week, Mar 14 could trade as high as 85.00 – 86.00, especially for intraday highs, but its staying power at that level is most likely limited. We expect a lower settlement on the week as the market searches for physical support while trading a range of 80.00 – 84.00 (inside) or 78.50 – 85.45 (outside).

    Louis W Rose IV, PhD has worked with cotton as a producer, consultant, analyst and trader. Rose holds degrees in Education, Agriculture, Plant Science and Business (MBA) from AR St Univ, OK St Univ and the Univ of Memphis, respectively. He has held positions with Aon Reinsurance and Cargill Cotton. Rose currently provides analytic services for various clients and media outlets and is the co-founder of Risk Analytics, LLC, producers of The Rose Report, which he authors. For more info on The Rose Report or analytic services, please visit: www.rosecottonreport.com.


    Tags: , , ,

    Leave a Reply

    Name and Email Address are required fields. Your email will not be published or shared with third parties.

    Agfax Cotton News

    Rose on Cotton: Bears in the Woods; World Production Could Climb9-19

    Georgia Cotton: Wet Weather Causing Boll Rot, Hard Lock9-19

    Georgia: Rains Falling at the Wrong Times9-19

    Georgia Cotton: Decisions for Defoliation Timing9-19

    Cotton Harvest – Midsouth – Picking, Cotton Defoliation Gear Up – AgFax9-19

    Cleveland on Cotton: Market is Dog Paddling; China Offers a Bone9-19

    Doane Cotton Close: Bearish Chinese Sentiments Weigh on Futures9-19

    AFB Cotton Close: Dec. Violate Trendline Support9-19

    AgFax Cotton Review: Australia Production Down 50%; Storm Destroys Arizona Warehouses9-19

    DTN Cotton Close: Gives Back Last Week’s Gains9-19

    Louisiana: Diagnosing Nematode Damage9-19

    Cotton Harvest – Southeast – Pickers Running – AgFax9-19

    Texas: Farm Bill Education Program Slated Oct. 1 at Frost9-19

    DTN Cotton Open: Falls in Brisk Early Dealings9-19

    California Cotton Defoliation – Gearing Up Early – AgFax9-19

    Keith Good: Soybean Futures Hit 4-Year Low; Wheat, Corn Tumble, Too9-19

    Doane Cotton Close: Traders Develop Jekyll and Hide Psychology9-18

    AFB Cotton Close: Dec. Posts Losses but Maintains Support9-18

    Tennessee: Cotton Yield Monitoring with the Case-IH and Deere Pickers9-18

    DTN Cotton Close: Slips to 8 Session Low9-18

    Most Farmers Willing to Take More Steps to Improve Water Quality, Says Study9-18

    U.S. Drought Outlook: Improvements in Texas, Southwest9-18

    DTN Cotton Open: Remains in Red after Sales Data9-18

    U.S. Energy: Shale-Focused Companies’ Financial Performance Improves9-18

    Gasoline Prices: Average Falls 5 Cents9-18

    Propane Stocks: Rise by 1.4M Barrels9-18

    Diesel Prices: Decrease by a Penny9-18

    Keith Good: USDA Approves Use of Dow’s New GMO Corn, Soybeans9-18

    California Cotton Defoliation: Dealing With Whitefly And Variability In 20149-17

    DTN Cotton Close: Ekes Out Marginal Dec. Gains9-17

    California: 42 Counties Designated Natural Disaster Areas9-17

    DTN Fertilizer Trends: Rabobank Forecasts Higher 3Q Retail Prices9-17

    Cotton in Southwest: Need More Heat; 4-Bale Dryland; Pigweed Plans – AgFax9-17

    DTN Cotton Open: Futures Inch Slightly Higher9-17

    Keith Good: 18.3B Bushels of Corn, Soybeans — Where to Put it All?9-17

    Doane Cotton Close: Renewed Selling on Overhead Resistance9-16

    AFB Cotton Close: Dec. Continues Lower9-16

    DTN Cotton Close: Dec. Settles Modestly Lower9-16

    Texas Crop Weather: From Too Little Rain, to Too Much Rain, Too Early9-16

    Non-Land Production Costs Unlikely to See Much Decline in 20159-16