Cleveland: Welcoming 2020 On a Bullish Note
Cleveland: Welcoming 2020 On a Bullish Note

Cleveland: Welcoming 2020 On a Bullish Note

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 By Dr. O.A. Cleveland 

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

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