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Rose on Cotton: ‘The Pipeline is Empty and Merchants are Eager’

Debra Ferguson
By Louis W. Rose IV, Scott Sivils, Barry Bean, The Rose Report October 6, 2017

Rose on Cotton: ‘The Pipeline is Empty and Merchants are Eager’

©Debra L Ferguson Stock Photography

ICE cotton futures once again finished relatively close to where they ended the previous week, although this week’s trading action had some upside momentum in reaction to tropical weather. The Dec contract picked up 39 points on the week while Mar added 51, weakening the Dec – Mar inversion to 55 points.  

Total net sales and shipments continued to slow for the week ending Sept 28. Net sales were approximately 185K running bales; shipments were just below 120K. Still, sales remained ahead of the weekly pace required to hit the USDA’s export target. Sales were a bit discouraging, especially given the decline in futures prices Vs the previous assay period, however, one must remember that the thrust of the northern hemisphere’s harvest season has begun and a number of strong US export customers currently have their own domestic crops to consider (e.g. Turkey) while also considering fresh bales available from their neighbors (e.g. Greece).

We still believe that a strong export year is in the offing for the US.

It is WASDE report time once again – the agricultural event that occurs only 12 times per year.  The report is scheduled for release at 12:00 PM EST Thursday, as per usual.  Many analysts and traders will be crunching numbers this weekend, and we will be among them.  At this time, it looks as if world production will likely change very little Vs the Sept report, with the US crop likely to get a bit smaller Vs the gargantuan Sept projection of 21.76M bales.  The expectation for aggregate world consumption seems likely to be enhanced yet again.

On the weather front, Mother Nature seems dead set on throwing one last punch at this year’s cotton crop.  Cool and wet conditions are forecast across West Texas, Oklahoma and Kansas, coupled with a nearby rainy forecast for the Midsouth and Southeast, and yet another tropical storm set to make landfall along the north central Gulf Coast.  Just as harvest was getting on a steady roll with the crop wide open, moisture will likely delay harvest across portions of the southern US and cool weather will slow plant maturity and defoliation efforts across the Texas plains.

Harvest across the Midsouth and Southeast has made excellent progress over the past week under ideal conditions and we now estimate harvested acres in these regions at 30% and 25% respectively.  Harvest operations are running at maximum capacity to get as much cotton off the stalks as possible before the onset of wet weather.  Early yield reports have been very encouraging.

Tropical storm Nate is set to make landfall as a category 1 hurricane somewhere between the eastern Louisiana and western Alabama coast.  The predicted path has the storm moving to the northeast after landfall.  If such occurs, the storm should split the key major growing areas of the Mississippi Delta and southwest Georgia, with open acres in central and north Alabama as well as eastern Mississippi being most vulnerable to damage from the storm.  All eyes will be on harvest weather across the belt for the next several days. 

More Cotton Commentary


Given the lukewarm market reaction to Nate, producers looking for a boost to futures prices will have to continue looking as we move into the next week. They can take comfort, however, in knowing that the spot basis should be more generous than the ICE Dec contract. The pipeline is empty, and merchants are eager to obtain cotton for nearby delivery. We encourage producers to take advantage of this early basis, and sell recaps as soon as possible. Some producers will be tempted to go on call with early recaps, but we think selling for a fixed price and buying call options is a far safer strategy for bullish producers.

For next week, the standard weekly technical analysis for and money flow into the Dec contract remain bearish.  However, it is the WASDE report (and perhaps tropical storm Nate) that will set next’s week’s trading tone – and likely that of the week thereafter, as well.

Have a great weekend!

Rose Commodity Group offers commodity data analysis, risk management consulting, and provides liaison services to the commodity industry.  For more info on Rose Commodity Group, its partners, and the services offered, please visit:  www.rosecommoditygroup.com

 

Debra Ferguson
By Louis W. Rose IV, Scott Sivils, Barry Bean, The Rose Report October 6, 2017