The Bulls got to place a notch in the win column this week, with the July contract gaining 117 points. The Dec contract picked up 97 on the week, finishing at 78.91; the July – Dec straddle strengthened modestly to 444. Volatility in our market took a holiday this week, with the Dec contract trading a very subdued range of only 138 points.
Our market seemed no worse for wear during a week that included the monthly USDA WASDE report release, a much anticipated weekly export data dissemination and that also culminated in Friday the 13th. Our market held up admirably, given the USDA’s staunchness in refusing to enhance their US export projection for the current marketing year to where it should be (for them this should have been around 15.5M bales; for most others it is 16M – 16.5M).
We think the market is trading on a significantly higher expectation for US exports.
And why not? Total net sales and shipments for the week ending April 5 were quite strong at 180K and 512K running bales, respectively. Shipments continue to eclipse the weekly pace required in order to match the USDA’s revised 15M bale export target. In fact, shipments were more than 170K bales above the average weekly pace required to meet the USDA’s projection.
We concede that cancellations for the week ending April 5 were large at around 124K running bales, but were mostly attributable to one nation – Pakistan.
With respect to other data and figures put forth within the WASDE report, the USDA reduced its projection of aggregate world and domestic C/O to approximately 88.3M and 5.3M bales, respectively. Projected ending stocks outside of China were near unchanged Vs Mar. World production was projected higher Vs last month and consumption 400K bales lower, with a reduction in beginning stocks, which was mostly attributable to revisions for Brazil and Australia, responsible for the modest reduction to world aggregate carry-in and carry-out.
As the Dec contract continues to climb slowly towards 80 cents, some observers might wonder whether the market has forgotten the talk of tariffs that inspired indigestion and stop-loss orders last week. That’s a good question, and one we’ll answer at a later date.
In the meantime, the forward contracting business is seeing some activity with smaller merchants going head to head with larger merchants on the basis. Assuming average yield and quality, producers can lock in a profit at current levels, and that’s not something to ignore or take for granted. On the other hand, the Dec contract has moved very slowly, has strong support at 76 and 74, and we’ve only just begun to see the possibility of a weather rally.
Assuming producers have taken the nearly universal advice to price 25% to 50% at current levels, the coming week should be a good opportunity to focus on farming and let your broker watch the market. If you haven’t yet priced any cotton, this would be a great time to price the first portion of your crop.
For next week, the standard weekly technical analysis for and money flow into the July contract are supportive to bullish. The formidable on-call position held by mills could certainly spark a sharp rally against the July contract sometime prior to first notice day. Index fund rolling maneuvers for the May to July period have all but culminated.
Have a great weekend!