Thompson On Cotton: Cautiously Bullish, With Emphasis On “Cautiously”

Sound the trumpets and beat the gong, the market rally continues. May futures extended its retracement above 80 cents, closing today at 83.53.

New crop December futures, which now has everyone’s attention, maintained its slow steady uptrend, settling today at 78.19.

Fundamentals Are The Fuel As Rally Continues

Cotton fundamentals, the most supportive we’ve seen in years, are fueling this rally. As a result, there appears to be minimal downside risk to December futures at the moment.

Globally, cotton consumption will once again exceed cotton production. As a result, world ending stocks will decline by six million bales to 82.7 million.This would be the lowest ending stocks level since the 2011/2012 marketing year.

Need I mention how high prices got that year?

Better yet, the U.S. share of the world trade is increasing significantly due in large part to our superior quality and reliability.  Case in point, we’ve seen successive weeks of exports sales surpassing 320,000 bales.

It’s been apparent for some time since we were on pace to exceed export sales estimate. However, the looming question and concern has been – can we ship that much cotton in a year?  Over the last two weeks almost one million bales have been shipped, so it’s apparent we can logistically export 16 million bales.

As for new crop, 199,000 bales were sold last week bringing total new crop sales to just shy of 2.5 million bales to date.  The last time sale volume reached this level at this time of year was the 2011/2012 marketing year.

Drought In Southwest – More Abandonment Potential?

The Southwest has received little or no rain over the past several months.  All eyes will be on this region in the upcoming weeks.  Even with a May planting rain, the crop will have to be spoon-fed all year, which poses a huge risk.

It’s possible that abandonment may exceed historical levels and the increase in planted acres may not translate into bales.

Technically, the specs are long the market but have money in hand to increase their position.  They may be encouraged to do so with mills having 7.5 million bales of on call sales still to price.  Even though these sales are equally based on May and July futures, December would most certainly be drug along.

Anyone reading between lines can easily tell we are cautiously bullish, for now. However, that’s not to say one shouldn’t take advantage of current prices by fixing a portion of your crop.

More on Cotton

Keep in mind, fundamentals aren’t the only market influence.  You never know what type firestorm might erupt from a late-night tweet out of the White House.  Choice Cotton has a host of marketing alternatives from which you can choose: a pool, Rule 5 contracts, equity contracts and acre contracts. In addition, we are also available to advise on fixation levels and discuss ever changing market conditions.

As a producer-owned marketing company, we are here to serve the needs of U.S. cotton growers.

Until next time…

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