Cleveland on Cotton: Market Refuses to Back Down

    Photo: Texas AgriLife

    Cotton just does not want to go down. Attempts to push prices below 93 cent have been short lived and have come without any muscle. Prices continue to creep back to 95 cents while keeping their eye on the 96-cent resistance level and the nearby objective of 97-100 cents. Additionally, prices continue to trade above all the moving average trend lines.

    The weekly close was near the Friday highs; thus, positioning the market to break above 95 cents on Monday. The more times prices move above 95 cents the weaker the 96-cent resistance becomes. Traders are positioning themselves for next week’s potential hurricane related crop losses across the MidSouth and Southeast.

    Further, demand continues to hold strong despite transportation delays of containers coming into the U.S. Additionally, merchants are facing delays in getting cotton loaded onto containers and exported to Southeast Asia and China. Retailers, themselves are now chartering container ships and air freight companies.

    The U.S. consumer is all buying all apparel items the retailer can put on the shelf. Too, in a testament to cotton demand, cotton’ s share of textile purchases continues to rise—slowly but surely. Cotton is again becoming the Fabric of Our Lives. Kudos to the cotton industry and Cotton Inc. World supply and demand are tightening.

    The world cotton scenario calls for higher prices. The market will continue to batter the 95-cent level and then the 96-cent level until prices eventually break out to the topside. Somewhat unnoticed has been the relatively lower priced Indian cotton that has filled the needs of yarn mills and hence the retail shelves.

    This has been a boom to increased consumer demand. Demand is sufficient to allow for higher cotton prices despite the increased competition form oil based synthetic fibers…as world cotton supply eases lower and lower.

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    Likely, the market is waiting for USDA’s September 10 world supply report and the U.S. production report before breaking higher to new territory. One measure of the U.S. crop, per USDA data, suggests a near record crop is in sight. Yet, another metric of the crop indicates that crop progress is very late in the all-important state of Texas.

    In fact, both the Texas and Oklahoma crops are dangerously late when expressed in terms of average date of first frost. Too, while fruit set on the MidSouth crop has been phenomenal the past month, much of the crop has cut out and is now blooming at the top. Crop surveyors will be in the field collecting yield data the mid part of next week.

    Should there be any hurricane related damage to the crop it should not be part of the September 10 estimates. Expectations are than the report will indicate that world production is lower than the August estimate reported while world consumption is expected to be marginally stronger, a slightly bullish report.

    Net export sales continue to be good but are somewhat market neutral as merchants still await more information about crop size before making aggressive sales. Net weekly sales were 327,300 bales of Upland and 14,300 bales of Pima. The bulls were disappointed that sales to China were only marginal.

    However, we are only two weeks into the 2021-22 marketing year; thus, the data are limited. It should be noted that Chinese Reserve sales continue to sell out every day. Further, to slow speculation in the Chinese market, the State decreed that only textile mills could purchase cotton from the government Reserve.

    The key remains that the market sells out every day, i.e., a very robust demand. Too, the market is beginning to note that textile mills around the world are expressing concern that prices will move higher.

    It should be mentioned that world events are such that any saber rattling by world superpowers regarding Taiwan could take 3-10 cents out of the market. Such is not likely, but the potential event does add emphasis to price risk management and the need to protect cotton prices that are approaching a dollar. Yet, today’s supply demand events may take cotton to dollar land. Speculators are in control.

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