Cleveland on Cotton: Welcome to the Crapshoot – The Clock is Ticking

    Cotton seedling at sunset. Photo: ©Debra L Ferguson

    Cotton prices suffered a major setback this week as the FED’s decision to continue its interest rate increase was followed by a triple digit slide to just below its major support level of 75.00-75.50 cents. 

    The Thursday settlement of 75.05, essentially the low of the day and week, subjects the market to a probable dip down to the 72-73 cent mark, or nearly a 15% decline from the tariff announcement level of near 84 cents. Of course, the FED’s action was bearish for all commodities and all U.S. export goods as it strengthens the value of the dollar, consequently requiring more foreign currency to buy dollars to pay for imported cotton. Remember, cotton is typically internationally traded in terms of the U.S. dollar.

    Thus, the market is set to remain locked in its wide 7 cent trading range (75-82 cents). We get excited at the 80-81 cent trade, only to have the door slammed on price advance.

    Cotton is almost becoming a dead market despite its seemingly playful attitude around the 80-81 cent range. It seems to be the train that’s not going anywhere. The trading range is locked in place because of the tariff.

    Decline on Several Levels

    Nevertheless, the decline in world production and the ever declining level of world stocks have the market poised for higher prices. One thing is certain, the market will break out of the current price range. Will it move higher or lower?  One can choose sides, but whichever way it goes, we should see a 5 to 8 cent move. Yet, will the tariff be lifted while there is a chance to sell cotton overseas?  The clock is ticking on that and its way past halftime.

    Consumption may be slipping, partly because of the Turkish credit/cash problem. The combination of the loss of the Chinese market, coupled with the troubled Turkish economy (Turkey has historically been one of the two largest users of U.S. cotton) can still spell doom for U.S. exports. Should these come to transpire then the rocket fuse fizzles and cotton prices challenge the 75 cent support level again.

    My personal analysis takes prices higher, but the tariff has become little more than a crapshoot. Do some pricing at 80 cents. However, recaps without high quality will suffer a basis loss as will those will staple below 37.


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