The market was relatively calm last week despite the highly anticipated release of the WASDE and export sales reports as the former was seen as market neutral. Daily closes fell within a range of 86 points settling Friday at 93.50.
The highlight of the week came as it traded above 95 cents as a result of a lower crop conditions rating and a potential tropical weather threat. Nevertheless, within minutes, grower selling pressure and spec profit taking returned it to where it opened.
With all the confusion surrounding planted acres, everyone was eagerly awaiting this month’s WASDE report to see if and how USDA would reconcile. To USDA’s credit, they did lower harvested acres by four percent, but in turn raised the per acre yield estimate, thereby increasing U.S. production by 1.2 million bales to 18.5 million.
This is quite ironic given the percentage of the crop rated good to excellent was lowered to 61 percent versus last week’s 70 percent. Even though U.S. exports were raised to 15.5 million, production will exceed consumption. Thus, the all-important ending stock number rose to 3.7 million bales as compared to three million last month.
Globally, the numbers were more favorable. A 1.4 million bale increase in world consumption more than offset a 750,000-bale increase in world production. In turn, world ending stocks were bullishly reduced to 86.7 million. In the eyes of the market, this was enough to counter the bearish domestic numbers, at least for now.
Weekly export sales numbers provided the biggest bullish news. Net current crop sales totaled 465,130 bales, up 48 percent from the previous week but, more importantly, the highest one-week of export sales since September 2020. China returned to the market as the major buyer responsible for over half of these sales. This is a sign global demand remains strong despite continued Covid restraints.
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Where to from here? The Managed Funds are long the market at a level not seen since 2008. Not only will cotton fundamentals influence the direction they move going forward, but economic news will as well.
The latter raises some concern. They are indications our economy may be slowing. With government stimulus now ended, any decline in consumer spending could further weaken it. Look for market advances to meet strong resistance at 95 cents as growers will see this as a pricing opportunity. The Funds will have to further increase their net long position for any breakout to be successful.
At present, there just doesn’t appear to be enough new bullish news to encourage this. Subsequently, long at historic levels profit taking or liquidation should be a concern.
Prices will likely trade in the range of 92 to 95 cents for now thanks to a sizeable trade short position providing support. However, going forward cotton prices will be subject to the news of the day.