Rose on Cotton: Export Demands for U.S. Cotton Whittle Away at USDA Projections

    Cotton futures finished the week near unchanged ahead of the USDA’s June WASDE report with July and Dec giving up 34 and 9 points, respectively.  By virtue of having the greatest open interest, the Dec contract is now the de facto front month.

    Demand for US cotton for export continues to whittle away at the USDA’s domestic C/O projections – even if they have not made it official yet.  Both sales and shipments were somewhat lower for the week ending May 28 vs the previous week. However, when considering the holiday-shortened sales period, sales and shipments reported Thursday were nearly on par with those disseminated last week. Total net sales and shipments in excess of 100K and 300K running bales is seasonally strong. And, we expect shipments to continue to be strong with US merchants offering basis incentives for fast offtake in an effort to avoid the scant carry currently plaguing the market.

    On the supply side, most analysts are in agreement that estimated acreage to be put forth in the USDA’s annual June 30 acreage report will be lower than the 9.44M acres put forth in the Mar 31 planting intentions survey.

    Informa Economics has projected US 2015 production at 13.28M bales, off nearly 1.25M bales vs the USDA’s May projection.  We certainly agree that Informa’s projection is plausible, although we doubt the USDA will move their production quite that low on next week’s June WASDE report, scheduled for release on Wednesday, June 10.  Internationally, the arrival of the monsoon season looks as if it will be delayed from the middle portion of India southward.

    For next week, the technical analysis remains somewhat friendly with money flow into the Dec contract supportive. However, it will likely be fundamental information that drives the market next week. We expect US export sales and shipments to continue to cut into the USDA’s projected domestic C/O figures. And, if 2015/16 projected US C/O can be trimmed to 4M, or fewer, bales we expect the Dec contract to finish next week higher than it did this week.  Index funds rolling long positions out of July and into Dec will likely lend a hand to the Dec contract.

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    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:


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