Thompson on Cotton: Market Activity Returns, Fundamentals Unchanged

    As I began to write this market report, I was thinking of ways to make a boring range bound market sound exciting. Both the July and December contract after coming off their most recent low of 57.29 and 57.03 respectively on Mar. 29 have been trading in a very narrow 4 cent range between 60 to 64 cents. Every time the market would take one step forward it would take one and a half steps back very rarely either up or down more than 40 or 50 points in a trading session.

    To the surprise of many yesterday’s trading (May 24) brought some life back into the market. Though closing still within the range, both contracts experienced triple digits gains. July gained 153 points settling at 63.01 while the December contract climbed 111 points to close at 62.45. This was the first solid move back toward their latest highs of 64.37 and 63.42 respectively on May 2nd.

    The catalyst for this jump had more to do with an improving view of the U.S economy rather than cotton fundamentals as evidenced by some favorable economic indicators released yesterday. Most notably were an eight year high in new home sales and their prices hitting a record high. Indirectly this does influence cotton fundamentals because with new home sales comes the purchase of cotton products such as draperies, linens, carpeting, and many others.

    We have said for some time, any sustained rally in cotton will have to come from increased demand not from outside influences. This makes one question whether this is enough to force a follow through or is simply a knee jerk reaction to the stock market’s 200 point surge.

    In any event, a return to the top end of the range will provide those remaining few still holding old crop with an excellent pricing opportunity.

    Cotton Commentary


    Most everyone’s market attention has now turned to the new crop December contract. Short term this will be more influenced by crop conditions and planting progress.

    There is a growing concern on the High Plains of Texas that acreage could be reduced if rains continue and planting bumps up against fast approaching insurance deadlines. This, however, could be premature because with all this subsoil moisture the potential for a large crop is there and the rest of the U.S. is getting off to one of its best starts ever.

    With acreage reductions in several countries beyond the U.S., we will keep a close eye out for weather scares that could lower their production and in turn could open doors to greater U.S. exports sales.




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