ICE futures for March delivery lost another 193 points this week- nearly 350 points over the last two weeks – amid US currency values that continue to surge and push higher.
Mar set a new intraweek life of contract low this week, as well as fresh weekly low settlement. Fresh life of contract intraday low and daily settlement values were featured multiple times in this week’s trading action. Dec gave up 154 points this week, settling at 61.50.
The market has failed to follow the script, to say the least.
- Automated trading systems should perhaps be informed by the fact that nearly a million bales of US export business accomplished in a fortnight, accompanied by a strong basis in the country are not compelling reasons to sell the market into the basement.
- Perhaps someone should tell the specs, too, as they have decided to wade significantly into the water on the short side – a position in which they do not often remain for long periods.
- Both the commercials and non-commercials alike continue to be net sellers of volatility, which continues to suggest that front month futures do not have much further to fall.
Still, the technical analysis and the charts are ominous. Further, glimpses at support near 57.00 during Friday’s trading were far from juggernaut proportions.
This week’s trading action was discouraging, to say the least, and our friends who make a living tilling the soil share our sentiments. We spoke to several producers in southeastern Missouri this week, only to find out that they have been acting on their disillusionment. More than a handful of long time cotton producers in this area have stated that fields not within the upper echelon of production in 2014 were planted to winter wheat.
More than once coined the US cotton industry’s “best kept secret” for its excellent yields and production, which rivaled or exceeded those in far more conducive cotton climates, the area’s production base is at risk.
No fewer than 4 of the state’s cotton gins will not be operational next season, if ever again. Collectively, the state may operate less than 15 ginning facilities next season.
In one case, a farmer-operated cooperative gin opted to shutter its doors. What does it say when producers who are stewards to land that routinely produces close to three bales per acre say they can’t make cotton work without additional revenue streams? Quite frankly, we think that it says that, as businessmen, the risk-reward ratio is not attractive to them.
Similar scenarios have played out elsewhere. In California and Arizona many cotton fields have morphed into alfalfa fields in order to serve the growing cattle and dairy industries. Loss of infrastructure, particularly on-farm cotton production infrastructure, is a serious concern for our industry. It is expensive, and can be quite volatile with respect to its depreciation. Once the habit is given up, it is often not easily reacquired.
For next week, we think that the “smarter money” is getting long, although this may not be a profitable endeavor over the next five trading days.
Producers who haven’t committed acres face a tough decision in the coming weeks.
On one hand, there’s an argument to be made that if we don’t see a pre-planting rally, the shortage of acres should inspire a rally sometime after the USDA’s June 30 planted acres report.
On the other hand, that’s a lot of money to spend on something that MIGHT happen.
We believe producers will have a chance to sell cotton at a profitable level this year, but this will require a combination of smart and timely marketing, tight control of input costs and friendly weather patterns. Producers are encouraged to work closely with their marketing and production consultants to control as many of these variables as possible.
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
The Rose Report weekly edition is published and made available free of charge as a courtesy to producers, ginners, merchants, agents and all others who have an interest in the cotton market. To obtain a free trial of the more comprehensive and up-to-date Rose Report daily and weekly cotton and grain editions, or to learn more about our other cotton analyses and analytic services please visit: http://www.rosecottonreport.com/.