Export demand is further boosted by the abundant supply of U.S. low grades comprised of low micronaire and barky cotton. The demand for low grades is boosted by the very cheap offering price. Many mills covet the cheap low grades after being mixed with high grade cotton, the resulting yarns can be marketed at a respectable profit. The combination of U.S. and Indian low grades this year gives mills a solid supply base. This has been timely for mills as they struggle to meet world demand.

Prices solidified their trading range on the week with old crop holding the 84-86 cent level and the new crop December keeping the 78-79 cent trading range busy. July has become the lead month for 2017 crop and the transition between July and new crop December should now be bridged.  The 500 point spread between July and December must be bridged and the spread is expected to be worked down to 250 points or less due to the strong demand necessary to meet the mill’s immediate delivery requirements.

Net export sales across both marketing years for Upland and Pima totaled 577,300 RB. Current year Upland sales were 312,000 RB and Pima sales were 6,000 RB. Upland sales for the 2018-19 marketing season were 259,300 RB, a marketing year high. Primary buyers for the current season crop were Turkey, Vietnam, Bangladesh, Indonesia and South Korea.

Export shipments again exceeded 400,000 bales as 421,400 RB of Upland and 6,500 of Pima were exported. Primary destinations were Vietnam, China, Turkey and Indonesia. It is noted that the prior week’s shipments were less than 400,000 bales, but recall that week included the celebration of the Easter weekend which always has slow shipments. Too, it should be noted that 2017-18 shipments have effectively caught up with the pace established last season. With 15 more weeks (14.5) remaining in the season coupled with the bales cleared for export and the backlog of shipping orders, U.S. exports are expected to approach 16 million bales for the year, compared to the current USDA estimate of 15.0 million bales.

Exports of that magnitude will have a significant impact on carryover stocks both in the U.S. and globally. U.S. carryover will fall to some 4.2-4.4 million bales and world carryover should fall to some 87 million bales, marketing the fourth year in the drawdown of world stocks. Too, world stocks are expected to further drop in 2018-19 and this is the basis for expecting the New York ICE December cotton futures to trade near 80 cents.

Additionally, mills further increased their on-call sales positions, meaning they increased their need to buy futures on the July contract. Thus, July should be well supported at 83 cents and increases the likelihood that the July contract can climb to 90 cents. Too, the new crop December would get limited support from an increase in July futures.

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