Cleveland on Cotton: Impressive Sales, Even With China Sidelined

The cotton market continues to do little more than tread water, despite excellent export sales and shipments as the market keeps an eye focused on the fallout associated with world concerns surrounding the coronavirus.

The low end of the price support level, 67.00-67.50 cents, has provided stiff resistance on attempts to push prices lower. One would think the performance of the export market over the past three weeks would have sent the market into the mid 70s, but not so. Mills continue to express concerns of maintaining spinning rates and the ability to sell yarn.

The long-term technical support continues to provide solid support and prices should hold the 67.50 level. However, any close below 67 cents would weaken the bull considerably.

Short term the market is attempting to use the current 67.00-67.50 as its base. Yet, given that more than one million bales of U.S. cotton have been sold in the export market in the past three weeks, export sales have signaled that mills will support the market at its current level.

Chinese Mills Interested But Delivery Complications Persist

U.S. financial markets – and the equity market, specifically – continue to hover near a record high. But as a group, commodities struggle to find ways to deliver goods to the Chinese market, given the various work and manufacturing quarantines.

Textile mill closures appear to be very limited and mill buyers suggest they are interested in cotton purchases. Yet, the weekly export report was void of sales to China (a net of a negative 2,300 bales). But in spite of this week’s negative sales (caused by cancellations of prior sales), Chinese mills are very active in asking for prices quotes on a daily basis.

The implication is that China will purchase at least another 500,000 bales of U.S cotton if and when the country can move past coronavirus restrictions.

Plenty Of Export Sales

U.S. weekly export sales were an impressive 343,600 bales. That included 332,300 bales of Upland. As noted, China was not actually buying, just asking.

Major buyers included Turkey, Vietnam, Pakistan, Indonesia and Bangladesh. Turkey and Vietnam, were both significant buyers. Turkey made a big splash, purchasing more than 150,000 bales. It is noteworthy that the two major historical buyers of U.S. cotton, As Indonesia and Bangladesh have grown their textile industry, the U.S. has been the primary supplier.

Yet, the impressive feature of the weekly export sales report was the level of shipments. Shipments reached a marketing year high of Upland shipments totaling 418,800 bales. Pima added another 5,700 bales. Vietnam, China, Pakistan and Turkey were the primary destinations.

Five countries received more than 30,000 bales.

More on Cotton

The principal concern is always demand. Demand was showing signs of increasing before the coronavirus outbreak.

After two weeks of upheaval, both sales and shipments have shown significant improvement. The virus fallout drove prices lower and mills responded with a near-Christmas shopping list of cotton.

Certainly, a very healthy level of demand has been uncovered by the lower prices. Additionally, mills have continued to be very active buyers on a daily basis, including interest from Chinese mills.

So, last week’s comment on price activity holds. A return to at least the low 70s is expected—72 to 75, basis old crop and new crop.

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