The cotton market snoozed all week, marking time, watching crop development, and assuring itself that plenty of moisture would fall on the big Texas acreage. Trading was very reminiscent of the Dog Days of August with all parties sleeping—and it was just the end of May!
Planting progress is very much on schedule across the Northern Hemisphere and the big U.S. acreage is viewed as in line with the 5-year average. The south plains of Texas continue to be marginally dry, but rainfall is advancing across most of the acreage. Additionally, moisture is forecast on at least two occasions for the coming week.
As commented last week it is still early with ample time for moisture. The market has not noted any price stress due to less than desired moisture, but the clock is ticking. A window of some 20 days is becoming more important. The price support for the new crop December contract has been solid between 72 and 73 cents. However, growers should be prepared for that support to slip to the 70-71 cent area assuming normal moisture does arrive.
World textile mills continue their very aggressive purchasing pattern of 2017 U.S. growths. The lack of carry in the New York ICE has encouraged U.S. cooperatives and merchants alike to aggressively offer growths across the globe. Mills have been very responsive, noting improved demand and favorable prices.
The current USDA 2017-18 export estimate stands at 14 million bales. However, the competitiveness of the U.S. offers strongly suggests that exports for the coming season will climb to 14.3-14.4 million bales, despite an expected production increase across major world producing countries.
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Thus, as Chinese stocks continue to decline, the world cotton industry is on the doorstep of several years of a demand driven market. The typical stretch would be 3 years, but demand can be fickle, running longer or shorter. The United States, Australia and Brazil will be the primary benefactors. Textile mills will continue to look to source high quality machine picked cotton.
The potential price squeeze facing the expiration of the July contract has not disappeared, but is diminishing. On-call sales continue to decline, but were hovering at a ratio of 10 to 1 with respect to on-call purchases at week’s end. Yet, as open interest and the actual volume of cotton that must be fixed declines then the potential for a squeeze also declines. Too, certificated stocks continue to increase and have risen to a level that makes a squeeze highly improbable. Likely, the event has been dodged.
Weekly export sales were seasonally strong as were physical sales for the 2017-18 marketing season. Further, shipments were very brisk. Net sales of Upland were 110,900 RB with Vietnam, China and Indonesia being the primary buyers. Pima sales were only 700 RB. Sales for delivery in 2017-18 were 159,600 RB and represented a continuation of strong forward sales. Shipments, as expected, were very active, totaling 370,400 RB of Upland and 10,700 RB of Pima.
December futures could potentially experience a bit of nervousness some 2 weeks out if the southern plains remain dry. However, as stated, the outlook for weather events suggest good activity.
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