Cleveland on Cotton: Market Follows Fundamentals Despite Outside Influences

    The cotton market continues to follow its fundamentals, despite the mixed bag of economic news portrayed by the Russian war and the severe inflation woes facing the U.S. economy.

    Cotton demand continues strong, as exhibited by export sales for both old crop and the new crop. Demand carried the May contract to an all-time high this week. The market will get its next look at the supply side of the price equation with the release USDA’s March planting intentions, March 31, less than two weeks away.

    With futures prices above the dollar level some are suggesting that demand will slow, and excessive supply will overtake the market’s bullish attitude. Yet, the market has returned to ride the 10-day moving average support line. Mill fixations are supporting prices. The old crop May futures contract has climbed to the highs of the recently expired March contract.

    May settled the week at 126.86 cents on a limit up move. Thus, the potential 130 cent mark is all but done. The weekly settlement for the December contract was 105.24 cents. Thus, it has essentially reached its 107-cent objective, keeping alive the potential of 112-cents.

    With the northern hemisphere planting window just ready to open, I am not a proponent of December futures climbing to the 120-125 cents level. Yet, should the current drought pattern continue another 60-70 days then such blistering prices will become a reality.

    The available 2021 crop supplies have continued to tighten as both export sales and shipments to China continue to be very aggressive. Too, the usual export demand points remain very strong as Pakistan, Vietnam, Turkey, and others continue to be excellent buyers.

    The current beltwide drought stretches from New Mexico to North Carolina. Granted, there is ample time to receive Mother Nature’s rainfall. However, given that the drought has spread over such a wide area, the market has become somewhat nervous about the potential size of the 2022 crop.

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    As it were, there is potential for moisture in the High Plains and Rolling Plains of Texas next week. Yet, the market is essentially saying, “I will believe it when I see it.”

    Recent export sales have been very supportive to the market and shipments are beginning to keep pace with sales. Net sales for the most recent week totaled 371,400 bales of Upland and 12,300 bales of Pima. Another 48,000 bales of Upland were sold for the 2022-23 marketing year. China, 144,880 bales of Upland was the primary buyer followed by Turkey, 59,400; Pakistan, 36,100; Vietnam, 27,300; Nicaragua, 22,000; and Bangladesh, 17,500.

    Shipments totaled 325,500 bales of Upland and 7,800 bales of Pima. The primary destinations for Upland were China, Pakistan, Turkey, Vietnam, and Mexico. China does merit watching as a Chinese coronavirus lockdown there could be a negative factor for demand. However, the demand for yarn should keep Chinese mills fully engaged.

    With the May contract establishing life of contract highs the price trend remains up. The market is following its short term and intermediate term price trends, both of which are up. Excellent exists at it recent lows. Additionally, the important mill on-call ratio of buying futures to selling futures remains at 7.9 to 1. This continues as a bullish signal to the market.

    Correction, we indicated last week that 2022 Memphis Territory cost of cotton production could climb to $1,600 per acre due to the recently inflated cost for fertilizer, fuel, and overall inflation. The estimate should have been $1,200 per acre. Thank you for your attention.

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