Cotton’s 2020 year begins with a bullish tone with strong upside fundamental potential compared to 2019. The little bull has its legs and has demonstrated some flair with a current seven month high in prices.
It is time to continue north to higher prices.
Let’s review some of the Bullish and Bearish factors facing 2020. Granted, I will miss some.
BULLISH
- Nearby prices at 70 cent level after falling into the 50s
- The tendency of prices to move to 75 cents after a bearish year
- Increasing world consumption amid world economic rebirth
- Declining world carryover and declining U.S. carryover
- Declining world plantings and slightly lower world production
- Exceptionally robust U.S. economy and strong consumer spending
- Very active increase in speculative market purchases
- Bullish market technical projecting challenge of 75 cents
- On-Call sales (March/May/July) out distancing On-Call purchases
- Strong December cash sales, removing cotton from grower hands
- High yielding and increased lint quality from seed companies
- U.S. planted acreage falling 8-12%
- Export sales pace well exceeds USDA sales estimate of 16.5 million bales
- Tariff resolutions favors increased exports to China/limits cancellations
BEARISH
- Declining U.S. domestic mill use
- Market analysts’ perception that the U.S.-China tariff hurts U.S cotton
- U.S. acreage lower, but still near 12 million
- Weekly U.S. export shipments must average 385,000 bales to reach USDA projection
- U.S. carryover stocks still 4.8-5.3 million bales
- Unchallenged entry into U.S. of Chinese textile goods
- Chinese overproduction due to unchallenged heavily subsidized price paid to growers
- Potential for increased U.S export cancellations without tariff resolution
The favorable technical and fundamental factors favor higher prices as the factors indicate. Both old crop and new crop contracts favor a breach of 75 cents. Prices for both market years have the potential to move to 77 cents or above.
Give a gift of cotton today.
Dr. O.A. Cleveland is professor emeritus, Agricultural Economics at Mississippi State University.
Source: Cotton Grower