Cotton would come around. It will. Yet, remember the 2024 crop will likely be harvested before growers can make profitable pricing decisions.
That sticky news remains in the forefront of any market analysis. Demand improvement is not eminent, thus bullish price news will have to come from Mother Nature. Bullish news from Mother Nature this season will mean weather problems for the world’s cotton growers. I know you are tired of hearing it, but demand continues to control price activity – that, and the occasional speculative bullish market plays that fail.
Unfortunately, the cotton industry simply fiddled as it failed to promote the world’s primary sustainable fiber. Too, those squealing the loudest about the failure to promote cotton are the very ones directly charged with promoting our fiber, The Fabric of Our Lives. Do not be misinformed by them. It is fair to ask, what have you done for me lately? After all, you are the one paying the bills.
Inflationomics has jumped square on the back of the consumer, and cotton will pay the price at least through the first quarter of 2025. That leaves our magic fiber fighting to hold the mid-70s on new crop December contract, with the expiring July contract’s swan song nothing more than a whimpering puppy sound as it falls into the mid- to low-70s during its upcoming expiry. Spinning mills simply say they cannot sell cotton yarn for a profit, not even with 75-77 cent cotton.
This market was hit with the three days of Jim Roger’s rolls this week, and late next week, the five-day Goldman Sachs rolls will come. As expected, Roger’s rolls were the big bear this week, and the Goldman rolls will not be friendly next week, but hopefully the market will be prepared.
We frequently comment about on-call sales versus on-call purchases, and this week’s newsletter is no exception. On-call purchases – generally thought of as grower selling and, more specifically, futures positions that will require the selling of futures contacts at some time in the future (a bearish market tendency) – have switched somewhat massively in favor of on-call purchases. That is not good for the bull. More importantly, that is not good for the grower.
The positions echo the negative feeling I have commented on far too often the past six months. It is time to turn bullish…it is time to find positive news in the market. Yet, I simply cannot find it.
The U.S. economy is in shambles. Yes, the stock market – Dow, NASDAQ, and S&P – all look good. The Russell 2000 is hanging on. However, those are index measures of the U.S. equity markets and are only loosely correlated to the health of the U.S. economy. The employment numbers look good, but so do I with a sack over my head. Hidden beneath the employment sack is the fact that a vast majority of the “new” jobs numbers have been taken by undocumented immigrants, a super vast majority (at the minimum wage).
The U.S. economic growth of which some pundits speak, shows government to be the only growth industry in the U.S. Yes, the U.S. government includes itself as an economic industry – and, according to government data, it is quickly becoming our biggest money-making business (?).
On the surface, exports look good. Weekly sales of upland totaled 222,600 bales. Excellent? No, not excellent. China took 192,500 bales. No other country took as many as 10,000 bales. Pitiful. Weekly shipments continue to fail to meet the level needed for the annual export level to climb to the 12.3 million bales estimated by USDA (Question: Why is the U.S. not exporting 14-15 million bales? The answer: promotion, promotion, promotion.). China has advertised for ten months now that it would take as much U.S. cotton as it could get. It is far less expensive for China to import cotton than to produce it in country. Thus, with prices at 85 cents for much of the year and now at 75 cents, they became the number one customer for U.S. cotton, and they will continue to be the principal buyer, especially at these giveaway prices.
Thus, the U.S. share of the world trade in cotton has declined. The U.S. has permanently lost market share. Brazil is the primary benefactor, as other countries have also taken small bites out of the U.S. share. It is good to have China. The Chinese market is particularly important to the U.S. cotton industry. Empirical studies indicate they will take U.S. cotton with or without a tariff or trade war.
However, the U.S. cotton industry has failed to maintain its market share around the globe. As Brazil improves its warehousing industry and its farm-to-market transportation system, there is increasing pressure on the U.S. to maintain its market share. The U.S. has failed. Growers will have to continue to demand better genetics with respect to fiber characteristics. The irony: genetics must be ever improving, even though the U.S. grower already has access to the best seed varieties in the world.
Yet, international cotton trade has changed, and the U.S. has lost market share. U.S. cotton abdicated and abandoned it promotional function years ago. Now that the world cotton trade arena has changed, international cotton merchants are looking for cotton outside the U.S. – and finding it, totally at the expense of the U.S. grower. Yet, the U.S. cotton industry has no program for self-promotion. The industry has lost its connection with the consumer.
Let us keep an eye on Mother Nature. The U.S. crop still projects to be 16.3 million bales – not that big, but adequate. The Indian subcontinent in the throngs of significant production perils. However, there is time for moisture and heat abatement there. It is far too soon to become “supply market bullish” and hope for a ten-cent rally. It could be in the works, but it is far too early to declare either way. There are no current signs of such.
Hold on, it is darkest before the dawn.
Give a gift of cotton today.
Dr. O.A. Cleveland is professor emeritus, Agricultural Economics at Mississippi State University.
Source: cottongrower.com