Cotton had a momentous week.
Note that we adjusted our trading range higher last week, up to 87 cents on the high side, and the market rocketed to the very top of the range in this week’s trading. If it can do 87 cents, then it might see 89 cents. But I do not expect that. Too, with less than a month before the July contract expiry begins, futures prices should hang close to the high end of the trading range.
The “new” fundamentals contained in the USDA May supply demand report were the basis for higher prices. USDA’s decrease in its estimate of 2022-23 carryover of 600,000 bales easily took the market higher. The historical rule of thumb is that the market will respond 100 points (in the opposite direction) for each 100,000-bale change in USDA’s domestic carryover. The market showed that again to be the case, as prices responded with a 600-point gain in the old crop July contract.
Likely, if NASS had been forthright with production data two to three months ago. some of that 600-point gain – maybe as much as 200 points – would have been realized by growers who sold cotton in March and April. With that, NASS should release data the month in which it becomes available instead of knowingly releasing incorrect data simply because they “want to.” The refusal by NASS to provide monthly production updates for February, March, and April 2023 directly cost growers that sold cotton during that period as much as two cents per pound.
The weekly export sales report indicated that sales for the week ending May 11 were less than spectacular, especially since July futures trading were generally in the 79-82 cent range. The report should be viewed as confirmation that spinning mill demand for cotton remains weak. Only three countries sourced more than 8,000 bales of U.S. cotton on the week – China (60,900 bales), Vietnam (23,400 bales), and Pakistan (19,800 bales). Given this past week of soaring prices, export sales appear to be in the 50,000-70,000-bale range. Then, some may “catch up” with their reporting requirements and the sales report will be higher. Yet, with exports sales disappearing with July futures now trading above 85 cents, the market is not expecting much business to be concluded.
The on-call sales report shows mills need to fix some 2,680,200 bales (buying futures) while growers need to fix the price of some 1,519,000 bales (selling futures). Thus, in trading terms, the numbers are historically in line, and the on-call positions offer little suggestion for determining price direction.
The new crop December contact played “follow the leader” on the week. Taking its price direction cue from the July contract, December futures eased higher. With the arrival of mid-May, the July futures contract will now tie itself to the moisture and planting situations in the Southern High Plains and Rolling Plains.
The Texas High Plains is far better than in 2022, but District 1S generally remains a bit drier than District 1N. Daily beneficial rains are in the forecast for the next 10 days. Some growers will not receive what they wish. Yet, there will be a net improvement above the current condition.
The new crop trading range remains 74-90 cents, basis December futures.
Give a gift of cotton today.
Dr. O.A. Cleveland is professor emeritus, Agricultural Economics at Mississippi State University.
Source: Cotton Grower