Cotton prices ended on an upbeat as the market spent the week consolidating gains it made two and three weeks ago when it broke above the 72 cent trading mark and established a new trading range. The nearby March New York ICE contract settled the week at 73.04 and the new crop December settled at 71.19 cents. Note the new crop price seems to be struggling to move much above 71 cents.
The market flirted with trading below 72 cents all week, but was able to muster strength from the demand side of the market to hold onto the new trading range, possibly prematurely defined as 72.00 to 75 cents. This extremely narrow 300 point range has proven to hold the bulk of the trading since the breakout. Expect this range to continue as the market now moves toward the end of January and the release of the National Cotton Council’s grower plantings intentions survey the first week in February. Too, the market’s ability to hold the range is also noted given the seemingly bearish USDA January supply demand report now nearly two weeks old. As I have debated since October, export demand is simply far surpassing the official USDA estimates. Possibly, export sales will prove to be front loaded as proposed by USDA, but the record high quality U.S. crop, trading on the world market near historically low price differences, supports the mills attempts to obtain as much of the high quality crop as they can.
Nevertheless, the primary fundamental in the market continues, week after week since early October, to be the on call sales volume. Continued comments about the on call sales positions versus the on call purchases positions held by traders is a subject that tires many. However, the unbalanced situation between the two is extremely large, nearly 11 to 1 for old crop contracts (March/May/July). The ratio on the March contract is above 9 to 1. This directly implies world textile mills are squarely behind the 8 ball as the March contract faces first notice day some 4 weeks from now.
Mills are extremely short the futures market and soon must increase the sheer volume of futures contracts they buy to offset the short positions–or either kick the can down the road by rolling their on call sales contracts to the May contract (of course they could roll to the July contract at a higher cost). This “buys” more time to fix the price (“buy time” is correct as the additional time is paid by mills as calculated by the price spread between March and May futures). Yet, in many situations, the actual cotton has already been used in the textile mill. The mill has simply delayed establishing the price it pays, thinking cotton prices will come down. I do not feel there is any possibility that prices will move lower, or move below 71/72 cents in the near to intermediate time. The great risk to the mill now that that the March contract may rise to 74-75 cents, or possibly higher.
Export sales for the week ending 1/12/2017 for 2016-17 were a very robust 384,400 RB. Upland sales were 346,500 RB and Pima sales totaled 6,200 RB. Sales for 2017-18 marketing year were 31,700 RB. Vietnam, Pakistan Turkey, China, Indonesia, and India were the primary buyers. Sales to both India and Pakistan address the production difficulties faced by both of those countries and the need for immediate supplies. India is an exporter, thus, it is significant when they are forced to import cotton. Crop difficulties have forced Pakistan to join the ranks of importing countries, but the market always takes notice when Pakistan is a buyer. Export shipments for the week were also strong totaling 238,600 RB. Upland deliveries accounted for 222, 500 RB and Pima shipments were 16,100 RB.
One sad note for the cotton industry. The Limited, once the primary supplier of cotton to women in the U.S. and around the globe shuttered its last store this week. The Limited is no more. As cotton continues to lose favor among consumers a portion of the reason is that it is becoming more and more difficult to find cotton goods. I find them and I purchase them, but it is becoming time consuming. Polyester has far out performed the cotton industry in presenting itself to the consumer and continues to extend its lead. The message that polyester is a major contributor to world air and water pollution is not getting to the consumer. In that light, and hitting hard at 2 of the major cotton states’ universities, Mississippi State defeated Texas A&M in the most recent polyester event as both teams squared off in their 100% polyester best basketball uniforms. You know with all that Adidas polluting and bacteria producing fiber that was a smelly mess.
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