Cleveland on Cotton: Imbalance Between On-Call Sales, Purchases Support High Prices

    Cotton harvest. ©Debra L Ferguson

    New crop cotton futures sailed above one dollar this week as the December contract traded near 104 cents, effectively meeting our 105-cent target. The December contract, just like last week, posted a new life of contract high this week—103.92 cents. Quite possibly we aimed too low as the next target is now 107-cents, high as that may sound.

    Based on export business, the continued drought, and declining world stocks the price uptrend continues in place. Too, the double-edged sword of inflation and record high input prices call for higher prices.

    The nearby March contract, with only some two weeks plus remaining before first notice day, keeps pecking away at the 130-cent objective we laid out months ago, before eventually giving up on it. The newfound vigor in the March contract continues to be the ratio of on-call sales versus on-call purchases which is screaming for higher prices. Yet, to date contract trading has now failed twice just below 130 cents.

    As with new crop, the trend remains higher, trading well above the 10-day moving average. The next target for the March, May, July contracts months is 135 cents. Again, that sounds high, but given the imbalance between on-call sales and on-call purchases, the potential for higher prices is very real.

    The advance to higher prices was also led by the excellent export sales recorded last week. Too, for the first time all year, and already halfway through the marketing year, export shipments were also outstanding.

    The market has not evidenced any demand deterioration, thus the potential for higher prices should be met. The new crop December contract forecast in the 107-115 cent range…again supported by input prices and inflation.

    While a price projection of 150 cents for old crop is borderline absurdity, the ratio of on-call sales to on-call purchases just for the May and July contracts is 9-1. That is some 7,939,100 bales must be bought via futures while only 895,100 bales need to be sold. Thus, current high prices are well supported.

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    Weekly exports sales for the week ending January 27, were a net of 332,100 bales of Upland and 7,900 bales of Pima. Further, another 315,100 bales of Upland were sold for 2022-23 marketing year along with 3,200 bales of Pima. More than 650,000 bales, for the combined marketing years, were sold on the week.

    The nearby price for the March contract on the week ranged between 119.20 and 122.88. Thus, the sales were made at some 5 cents less than current prices. Too, much of the activity was during the brief time the market fell below the 120-cent level. China was the biggest buyer, almost 103,000 bales, followed by Vietnam and Mexico.

    Export shipments totaled 302,100 bales of Upland and 14,000 bales of Pima. As we have noted numerous times, China will continue to be in the market for U.S. growths as even at current prices, U.S. cotton is the least expensive quality cotton on the market.

    To date, U.S. exports have reached 3.9 million bales and actual commitments are essentially 12 million bales. Thus, it is readily apparent that shipments are dreadfully lagging. Shipments must approach 400,000 bales weekly for the remainder of the marketing season to reach the USDA estimate of 15.0 million bales—difficult at best. Thus, look for USDA to reduce its estimate of U.S. exports.

    Export availability around the globe will continue as an issue since the government of Burkina Faso, the major West African exporter, was taken over by a dictator. March first notice day is February 22.

    Through last week there were an additional 3,551,300 bales of cotton on which the price had to be fixed (futures purchased) before that date. Both the March and December contracts continue to trade above the 10-day moving average. Stay with the trend.

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