It was an interesting week in the neighborhood. What was thought to be a mildly bearish planting intentions report was rewarded triple digit gains over the course of two trading sessions. That followed an all-time record high open interest posting in the Chinese ZCE market. Too, the New York Cotton Exchange (ICE) tallied its highest open interest since 2011. That was also the third highest since the record 302,683 in 2008. Thus, the market is screaming its intentions of a major move. Yet, with all this activity the old crop contracts are all below 58.50 cents and the new crop December contract sits a point below 57.75.
Sideways trading can relieve the market of this very larges open interest of course, or the market can break higher or lower for relief. Thus, for all the meaning we want to make of this, the market is keeping its cards close to its chest. The larger technical picture still points to the downside although the bulls had a good week.
Last weekend’s announcement by the Chinese of the volume, origin of growth, grade and year of growth was informative, but did not rule out export offers. Nevertheless, the announcement seemed to imply that export offerings were not under consideration. Certainly the market traded through the week feeling that exports were off the table. Thus, the market should continue to find its long term support at 54 cents to its liking.
Yet, with both world and U.S. production prospects for the 2016-17 marketing year on the upswing, the 60 cents price resistance level will likely continue to offer too much resistance for trading above the 61 cent level. However, the planting season door is now open and Mother Nature will distribute her April showers either in buckets, sheets or not at all. She does not seem to just let it simply float down anymore.
It is noted that world consumption is not expected to increase appreciably, but any increase associated with a draw down in Chinese stocks via an increase in Chinese domestic consumption will be a long awaited step in the direction of disappearing the near 60 million bale Chinese carryover.
Nevertheless, the cotton industry continues to lose sight of the magnitude of its market share loss to chemical fibers. In this day and age of magic and sometimes meaningless catch worlds like “sustainability,” the chemical industry continues its dominance in convincing consumers that chemical fibers are healthier and more environmentally friendly than natural cotton fiber. (The point being that U.S. cotton has a long track record of the proven efficient use of natural resources whether compared to non U.S. cotton or other U. S. based agricultural production.)
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Unless and until cotton is able to regain some of the fiber market share the demand for cotton will continue to shrink. It is all about demand, nothing else. Sugar coat the discussion and tilt it anyway one may wish. Demand is the only game in town, everything else is window dressing.
A “for example” is the sports apparel company Adidas. The world’s second largest producer of sports apparel, the company not only advertises that it does not want to use United States produced cotton, but it actually brags about being a better corporate citizen by not using U.S. cotton—all the time selling to the U.S. customer.
Adidas actually claims that U.S. producers do not protect the environment and that the company is committed to ensure that none of the products are made from U.S. cotton. They prefer cotton from China, Pakistan, Turkey and Africa among others because those growers are more conscious of the environment, so Adidas carries on. I have to wonder how MidSouth growers feel about their environmental stewardship responsibilities after reviewing Adidas material. In the meantime, cotton loses market share.
Nike is the only international sports apparel company that uses more cotton than Adidas. Nike, of course does not blacklist U.S. cotton. Another company that supports the use of U.S. cotton is UnderArmour. In fact, that company sponsors major events that specifically support the use of cotton and U.S. cotton in sports apparel.
Enough of promoting cotton versus chemical fibers.
The USDA March planting intentions report indicated that U.S. growers would plant 9.6 million acres in 2016 compared to a pre report expectation of 9.4 million acres. This represents a million acre increase over 2015 plantings of 8.6 million. Actually, 9.6 million acres was the very upper end of the expectation range. Most of the increase is expected to come from the Southwest and MidSouth. The West will be little changed from 2015 while the Southeast, driven by decreased plantings in North Carolina and South Carolina, will reduce acreage. Texas plantings are expected to be up 500,000 acres with Mississippi up 130,000 and an increase in Arkansas of 120,000 acres.
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