Cleveland on Cotton: Don’t Expect Immediate Shifts in Trading Range

Photo: Nick McMichen

The military command of “March in Place” remains the standard order for the cotton market. Pricing movement through the week remained limited and non-aggressive, yet nothing happened.

Trading volume did little more that create a big yawn, but the cotton market continues to perform more favorably than either the soybean or corn futures markets.

The July/December inversion continues to hold, but only by a few points. The market still reflects the immediate demand for cotton in the U.S. export market. Nevertheless, the export market remains weak due to the world textile slowdown, but business is advancing.

Consumers Are Buying Again

It is refreshing to see apparel sales beginning to show positive consumption numbers. A slight improvement in yarn movement also turned up.

It’s merely a situation of being able to claim that carryover stocks have peaked. Also, consumer confidence has regained its strength and is above its 2016 level.

Yet, prices have been swamped since the arrival of the Chinese coronavirus. World stocks outside of China are at record levels — meaning that the world export market will remain highly competitive, and more so than in the past 5 to 7 years.

Unfortunately, we expect that the current trading range, 55.50 to 59.50 cents, will stay in place. First Notice Day for the July contract was some three weeks ago and, doubtfully, no fundamentals will emerge to shake the market out of that range.

Several Buying Countries Pull Back

The weekly U.S. export sales report for the week ending May 21 showed net sales of only 44,600 bales of Upland and 10,100 bales of Pima.

China and Vietnam were the major buyers. But only eight countries were in the market for cotton, which is only about half of the typical number of countries buying cotton.

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While 111,000 bales went into weekly sales, cancellations brought net sales down to the aforementioned 44,600 bales. And of the 111,000 bales sold, 98,900 were sold to China and Vietnam.

An additional 171,900 bales were sold for the next marketing year, 2020-21. Thus, mills continue to be energetic about buying for next year, energetic that is, but not aggressive.

Mills are enjoying abnormally low price levels and continue to suggest they will buy more. Shipments remained on track to reach USDA’s target of 15.0 million bales, and momentum is building to ensure that target is reached.

Primary destinations for the week were Vietnam, China, Pakistan and Turkey. Yet, the market’s major concern is whether shipments of prior sales will actually be made to China.

China has purchased some 3.2 million bales during the current marketing year, accounting for almost 20% of all U.S. sales for the year. U.S. shipments for the current marketing year total about 11.1 million bales of the 15-million-bale target. The shipment pace is some 11% above last year’s pace.

Trading Range Likely Remains In Place

Currently, India and Brazil are gaining export strength. Economic conditions in those two countries have made those two growths the most competitive in the world, both below the quoted price for U.S. export styles.

Covid-19 has become widespread in those countries, forcing the basis for those two growths lower in an attempt to gain foreign currency to help boost the respective economies.

Again, I expect the current price trading range, roughly between 55-60 cents, to hold into the June and July WASDE reports.




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