Cleveland On Cotton: Is The Price Bottom Finally Established?

Cotton harvest. ©Debra L Ferguson Stock Photography

Beijing gave the world a 30% drop in cotton prices with its coronavirus. Ditto the Dow Jones. Yet, this week seemed to offer a bit of market cooling as some price stability returned.

We still saw triple-digit trading days and prices did briefly dip again into the high 40s, but the week ended with two consecutive days of higher prices

The weekly U.S. export sales report was supportive as were higher Chinese cotton prices, as well as the phycological sense that both cotton and the Dow Jones had possibly worked through a market bottom.

Cotton has outlived three market attempts to keep prices in the 40s. Each attempt was short lived and mini rallies moved prices back to the 52-53 cent area.

Likely April Scenario

U.S. export sales remain very active and supportive. Look for the market to hold the 50-cent line throughout April. Unfortunately for now, it is difficult to expect any price movement beyond 55 cents.

The fact that Chinese prices were higher at the end of the week gave the market enough momentum to hold its slight increase going into the weekend. This, coupled with the unexpected very positive weekly US export sales report, added strength to Friday’s higher price action.

Weekly net sales of 259,100 bales included 147,500 bales of Upland, 200 bales of Pima and 111,400 bales of Upland for the 2020-21 marketing year.

China Remains In The Market

Exports were exceptionally strong given the coronavirus dilemma. Exports totaled 424,600 bales, well in excess of the average weekly requirement needed to reach the USDA annual 2019-20 export estimate of 16.5 million bales.

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Additionally, China remains in the market for new crop exports. Too, current weekly shipments to China remain strong in spite of the tariff. Some 8.63 million bales have been shipped during the marketing year and the busy part of the export season is just now at hand.

This places the export shipping rate some 21% ahead of the prior year’s export pace. Further supporting a bit of a price rally is that some 12% of the exports this season have been to China compared to just 10% at the same time a year ago.

The weekly on-call sales report indicated that mills were very aggressive this week in fixing the price of cotton they had purchased. This suggests that mills are finally believing that market prices have reached, or nearly reached, the low point for the season.

That was yet another signal that the price low may finally be in. (Nevertheless, some of you elephants may recall I expected a price low some ten cents ago.)

Next Report: April S&D

USDA will release its April supply demand report next week and indications are that all estimates of the U.S. situation will remain unchanged compared to the March estimates.

However, world consumption could be lowered another 1.0 million bales and world carryover will be increased to some 84.3 million bales, or some 5.0 million bales more that had been expected some five months ago. Demand is building in this market, but it awaits mills being able to return to full operation

Net week’s edition may fall victim to Sheltering in Place.

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