Shurley on Cotton: Market Will Remain Erratic, Uncertain

The past few days have proven how vulnerable and uncertain this market is. Expect more of the same as we now move forward into the growing season. This sudden downturn may be too much too quickly and, thus, due for a “correction” but this proves how rapidly the tables can turn.

Producers with a fair portion of expected 2014 production priced on the uptrend from 80 to near 85 cents are feeling pretty fortunate right now.

Having said that, similar opportunities may present themselves again. Be patient but be ready.

Prices (Dec14 futures) peaked at 84.53 cents/lb on May 5th. Prices began to show weakness on May 8th when Dec14 closed at 83.51. Prices have now declined approximately 8% since the peak–with the majority of the damage coming in the last 3 trading days (last Thursday, last Friday, and today). Three straight days of triple-digit losses have the market closing at 77.86 cents/lb today–crashing through what seemed like good support at around 80 cents.

Outlook

U.S. weekly export sales have been good both for old crop and new crop. Export commitments for the 2014 crop year that begin August 1 are currently at about 20% of USDA’s forecast. Good export news, however, has not been sufficient to offset other factors that have driven the market sharply lower.

Dec14 has moved lower primarily on weather considerations, selling by speculative interests, and on technical chart considerations. In plain language, what does this mean? It means that the 85-cent area is likely now, more than before, more fully established as the near term top of the likely trading range. It means that some in the market were nervous with prices approaching 85 cents in the first place.

The support near 80 cents has been broken. Prices plowed through 80 cents without a blink. That was a little surprising. But, this may also lead to a “correction” back up to that level. That will be the next target if prices begin to improve. Continued negativity takes us to 77 to 76.

The market will be erratic and uncertain. There is a long way to go. If you feel you are too unprotected at this point, use a move back to 80+ to get caught up. If you are comfortable where you are, be happy and make sure you have a pretty good handle on yield potential later this summer and then add to pricing when good opportunities become available.

Weather and Crop Progress

The market (Dec14) also moved lower in anticipation of and then actual widespread rainfall on the Texas High Plains.

Following beneficial rain over the weekend, planting is expected to continue and conditions improve in the short term. Longer term, however, drought will still persist and worsen unless timely rain continues.

Most of the Mid-South and Southeast have received little rainfall over the past 7 days.

The market has also moved lower as planting has picked up and pace is now closer to the norm. For the week ending May 25th, cotton acreage is now 62% planted compared to 46% a week earlier and only 2 percentage points behind the 5-yr average for that date.

Texas is now 49% planted compared to 54% on average and the pace should quicken in some areas after recent rains and improved moisture. Georgia improved from 49% planted on May 18 to 66% planted on May 25–spot on average for that date.

The Mid-South is mostly ahead of normal. In the Southeast, Alabama is running behind as well as Virginia. The Carolinas made good progress and are ahead of average.

Next week’s Crop Progress report by USDA will add the percent squaring in addition to percent planted. The following week will be the first condition report on cotton. USDA’s first estimate of actual acreage planted will be released on June 30th.


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