Cleveland On Cotton: Demand Exists In A Huge Way, Despite Mills’ Rhetoric

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Cotton added another murky week to its trading linage, easily moving 100 points higher and then 100 points lower. It cannot generate any clear direction, so the whipsaw price action continued and only the day traders seemed to care.

The market is in search of new fundamental information, with talk of crop size — some say lower, others say higher. But no one seems willing to stick his or her neck out with a firm commitment. Also, the demand word has snuck back into the price equation, with some suggesting that demand is waning.

Don’t believe that for a second. Some mills are talking down demand, hoping they can convince the market to slip lower. But the world is easily on pace for record global-high demand. It’s not whether demand is out there but just how big demand will be.

A lack of trading volume did continue plaguing the market. As usual, most traders have been concentrating on the long Labor Day weekend. With that narrow three-cent trading range – 81-84 cents – traders dabbled in the market mostly to stay awake.

In the short term, it seems that any new fundamental news will have to come from foreign activity, either Australia, China, Brazil or India. The September USDA supply/demand report on September 12 will likely confirm the prior month’s big U.S. crop. Despite problems in the Southwest, the expected record or near-record yields in the Midsouth and Southeast will likely be confirmed.

Possibly a little bit of drier weather would be welcomed to allow the heavily loaded top crop to finish out.

The market also will get another dose of just how successful the seed breeders have been in elevating both yield and quality characteristics of the U.S. varieties.

Cotton Commentary

Despite rhetoric from the trade in the U.S., China and Turkey, cotton will continue to flow from exporter to importer and cotton consumption will not be slowed. At worse, there may be a detour or two through the traffic.

Already, just three weeks into the 2018-19 cotton marketing year, Upland export commitments already equal 60% of USDA’s export estimate. The average for this time of year is just 38%. U.S. export offers continue to be very aggressive, although sales have slowed the past two weeks.

Also, foreign mills have had a heavy hand in supporting the market. They have been very active with fixing their near-term on-call sales positions. Yet, on-call sales remain mildly supportive of the market..

Should a similar pattern continue into the 2019 calendar year, then on-call sales could become a bullish factor in the market. However, it’s too early to suggest so yet.

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