Cleveland on Cotton: Market Fundamentals Not Changing; China Sale April?
Now York cotton and many other world markets are closed for a 3-day weekend, but traders still fill the air with activity. Strong export interest continues and the Asian markets remain open along with the Chinese rumor mills.
The ICE May contract settled the week at 57.72 cents and all other 2016 contract months also settled below 58 cents. Exports continue to outpace the current USDA estimate, but many felt the current week’s export sales release was disappointing. I would not drop it to that category, but I do admit it was not as exciting as in some of the prior weeks.
Mother Nature, to date, and the near term forecast as well, favor cotton progress across the entire Northern Hemisphere.
Granted, it is still early, but April showers are upon us and those will bode well for cotton plantings to come from late April through mid-June. Certainly, there is planting outside of that time band, but much of the Northern Hemisphere does get planted in that window. The principal exception is of course India. The old crop months of May and July are likely locked in the 55-60 cent trading range with the possibility of a 100-150 point leakage on either side. The new crop December contract faces much the same story going into planting.
China will continue to dominate the news wires as most reports now have mid-April as the beginning of the Reserve stocks sale. The industry is anxious to learn of the selling rules and at which markets the Chinese government will target sales. Most do not expect cotton to be offered for export, but the possibility of that very bearish scenario does exists, at least until the government says different. Therefore, the uncertainty of the resolution of the Reserve sales will continue to tether cotton prices.
Many analysts expect a short covering rally to push New York above 60 cents, basis old crop futures months. Of course we have had one short covering rally. Nevertheless, there remain a good number of shorts still in the market. Typically, the market will give them another chance to get out. This time we should expect a drop to near 56 cents before heading higher and a challenge of 59-60 cents.
A rapid rise from 56 cents plus to the 59 cent plus area should not be discounted. However, the prices resistance at the 60 cent point looms too great for a technical breakthrough. It seems that it will take market fundamentals to change the market. And, at this time of the season, such change can only come for Mother Nature. As previously stated, she appears to be neutral for now.
More Cotton Commentary
Weekly export sales were a net of 84,400 RB for Upland and 8,500 for Pima. Upland sales for 2016-17 delivery were 52,100 bales. Shipments were heavy at 214,900 RB of Upland and 7,100 RB of Pima. Vietnam, the largest U.S. buyer, was not a major buyer on the week, but that was not viewed with any consequence. Vietnam spinners have remained well covered all season.
The market is now looking to the March 31 USDA plantings intentions report. U.S. growers are expected to plant 9.4 million acres, up 800,000 from 2015 when the U.S. planted only 8.6 million acres. The early to mid-January estimates were 9.1 million acres. However, it is believed growers will add additional land area to cotton.
As commented last week, we expect the market to continue to trade a very narrow 5 cent range from 54 to 59 cents during the coming weeks. Basis improvement is expected for high quality cotton and the new crop contracts will eventually benefit from declining volume of quality stocks around the world.
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The New York ICE cotton contracts blew past near-term resistance and back into the mid 70s – spurred on by another round of Chinese fund buying, and underpinned by extremely