Thompson on Cotton: Hurricanes Will Hang Over The Market This Week

    Cotton seed pile and bale loader at the Westhaven Cotton Company Gin in Lemoore, California . Photo: Lance Cheung, USDA

    Be it the dog days of summer or just a break for the Democratic Convention, little in the way of market-moving news materialized last week. In a market desperately searching for direction, the lack of such fodder resulted in low trading volume thus resulting in little price movement.

    Nevertheless, taking two steps forward and one step back, it did eke out a gain of a cent and a half for the week, closing at 64.28. Led by the funds and specs who now hold their largest long position since late October 2018, prices are ever nearer formidable resistance at 65 cents once again.

    As per the crop conditions report, an overall improvement was seen in the U.S. crop, Texas included. All eyes now shift to the Gulf of Mexico where, for the first time in recorded history, it will harbor two named hurricanes simultaneously.

    At present, both Marco and Laura are forecast to make landfall early this week near each other in the western Gulf around the Texas and Louisiana coastlines. Fortunately, both are predicted to be a minimal Category 1 or 2 in strength and mostly rainmakers, which at this time of year wouldn’t be all bad.

    But as we learned in 2018, these storms are unpredictable, so don’t rule out strengthening or a path correction in the days ahead.

    Better Sales, Shipping

    In the absence of other significant news items, last Thursday’s export sales report was eagerly anticipated. Traders were anxiously looking for any signs of strengthening demand.

    As hoped, weekly sales were good approaching 150,000 bales but even more impressive were shipments totaling 421,500 bales with over half destined for China and Vietnam. Total sales now stand at 48% of the 2020/21 export estimate as compared to the five-year average of 42%. This encouraging news was the catalyst for the week’s advance and very appeasing to those long the market.

    More on Cotton

    Where do prices go from here? Next week’s trading will be heavily influenced by the hurricanes’ effect on the crop as they make landfall and the potential consequences thereafter.

    If the market could find its way to break resistance and close above 65 cents, it would establish another level of resistance at 67.50. However, any challenge of 65 cents will be met with grower pricing pressure as seen in past attempts.

    Consider The Loan

    Given, the lackadaisical market, the cotton loan program is getting more attention from growers this year as a marketing alternative. The loan provides a safe haven allowing one to wait for improved demand and the price strength it might bring.

    Benefits include a cash advance with full government premiums, warehouse storage and loan interest forgiveness with LDP in effect, and time up to twelve months.

    We at Choice Cotton and AQCA would welcome the opportunity to assist you with this. With county FSA offices under-staffed and COVID-19 restraints still in place, we can do this for you in a timelier manner which in itself could increase your income and/or reduce your costs. Please call our office at 334-365-3369 for more information.

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