Cleveland on Cotton: Keep an Eye on Mother Nature

Cotton Planting. ©Debra L Ferguson Stock Photography

Cotton trading continues mixed, but all contracts settled higher the end of the first quarter of the year. Earlier the nearby May and July contracts slipped below 81 cents, but finished the week challenging the 82 cent mark. The new crop December contract clawed its way back to just below 78 cents and the week’s fundamental news purports to push the December futures contact above 78 cents, the price level we had advised to growers to begin their pricing. 

USDA’s annual prospective plantings report, coupled with the weekly export report and on-call sales report acted to support prices. The price objective for the May and July contracts remains at 85 cents while the objective for December sits near 80 cents.

The March USDA prospective planting report for cotton indicated that U.S. growers plan to seed 13.5 million acres in 2018. This is up 7% from 2017 plantings or 858,000 acres. Most of the increase, 398,000 acres will be in Texas. However, all states in the Southwest region showed an increase. Mississippi, Louisiana and Virginia were the only states estimated to have planting smaller than in 2017.  The market was pleasantly surprised by the estimate as evidenced by the price rally that occurred on the release. Many in the industry were concerned that plantings could reach 13.8 million acres. Thus, the estimate was at the lower end of expectations.

Drought conditions continue to plague the High Plains and Rolling Plains of Texas as well as all potential plantings in Oklahoma and Kansas. Major parts of the Southeast are suffering mild drought conditions, but the expected April showers should alleviate those conditions. Of course, the Texas plains will depend on the May-early June showers over that area, much of which are currently facing extreme drought. Thus, Mother Nature still dictates the direction of the December futures price.

Export sales and shipments continue to far surpass the current USDA estimates. It showed net sales for the week ended March 22nd at 373,200 bales:  Upland 366,400 RB and Pima 6,800 RB. An additional 62,100 RB were sold for 2018-19 marketing year. Total sales for the year have reached 15.1 million bales. With four months (actually 18 ½ weeks) left in the marketing year that has already exceeded USDA’s export estimate of 14.8 million bales. The current pace of export sales is some 2.6 million bales ahead of the pace of a year ago this week.  

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Weekly shipments were 453,200 bales: Upland 438,400 and Pima 14,800. Total shipments, the reason given by USDA for its low estimate of exports, now stand at 7.9 million bales and are now only some 350,000 bales behind the pace of last year. The current pace of shipments will likely push the shipment pace ahead of the prior year pace within two to three weeks. Thus, the April world supply demand report will likely see USDA increase its export estimate to 15.3 to 15.5 million bales. The resulting April estimate of U.S. carryover stocks should fall to some 4.9 to 4.6 million bales, compared to the current estimate of 5.5 million bales. (The lower end of the range assumes that USDA would adjust 2017 production lower.)

Mill on-call sales continue to support the market as mills increase their price fixations (buying both May and July futures). Mill on-call sales, across all contract trading months, now stand at a 159,172 contracts. With only 16 trading sessions left before the May futures contract faces first notice day, mills are expected to rapidly increase their pace of fixations. That buying activity will work to hold the May above the 81 cent level as it attempts to move to the mid 80’s.

Look to price as much as 35 percent of your 2018 crop with December at 78 cents. Granted, Mother Nature and her weatherman will dictate prices, but a good rain across the Southwest will take a nickel to a dime out of the market. Price some cotton and hope you are wrong. If you are wrong it just means the rest of your crop can be priced at even a higher level.

Twitter: @OAcotton
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