Is it the classical love/hate relationship?
Of course, the dastardly Wuhan Chinese coronavirus that China dumped on the world is the hate part of the relationship. Yet, Chinese cotton trading is now the love part of the relationship.
We mentioned last week that the double bottom in the Chinese cotton charts was pushing New York futures higher, bit by bit. This week, the price rally came home to roost with the deferred cotton contract almost touching 60 cents. More will come, but not just now.
The big chunks came this week with triple-digit gains as Chinese trading led the way. While there were some very slight daily losses in China, the chart pattern – coupled with across the board increases in weekly Chinese prices – led the way for New York to enjoy the best week it has had in months. Nevertheless, the New York ICE futures contracts remain below 60 cents and likely will remain so until after the northern hemisphere planting season concludes.
The blessing, nonetheless, is that cotton futures prices are much closer to 60 cents than the 50-cent level that had been staring us in the face. Hopefully, trading has reached a new pattern and will now hold a trading range between 54 and 58 cents, with speculative trades trying to push the 60-cent button.
Likely, the Chinese move has been satisfied for now. Yet, it could return at any time as the Chinese continue to make noise about buying agricultural products to satisfy their obligations to purchase agricultural goods from the U.S. Yet, the world coronavirus pandemic has kept some of those obligations in limbo. Additionally, the U.S. is actually more intent on getting some of the private and scientific property rights satisfied before pushing too hard on the trade picture.
Exports will remain a major issue. This week’s export sales report was positive for the first time in three weeks. While not a glowing report, net sales for the week ending April 16 included 15,700 bales of upland and 2,300 bales of Pima. Again, it was a weak report, but it was the first report in three weeks that did not show negative sales.
Export shipments were a bit brighter, as upland shipments totaled 266,300 bales and Pima shipments totaling 7,100 bales. Vietnam, Pakistan, China and Turkey were the primary delivery points. We should expect these four countries to be major delivery points for the remainder of the year. Bangladesh will also be a strong taker of U.S. cotton, but its textile economy has suffered a bit more than some others.
The Easter season price increase has encouraged more growers to give cotton plantings another look especially now that corn and soybeans have had significant sell offs. Corn has been hurt by the collapse in oil prices as the value of ethanol has also plummeted (yes, some oil traders had to actually pay buyers just to take their oil). Corn will rebound, but most likely not until the spring of 2021 when cotton prices should be in the 60-65+ cents. Soybeans will remain under pressure as the Brazilian crop continues to outproduce the U.S. crop. Too, Brazilian growers are very aggressive marketers.
U.S. growers are advised to postpone 2020 crop marketing decisions as prices will rebound somewhat. Too, the cash sale with loan premiums plus the LDP gain alternative will always be there and will tend to be in the 63-66 cent range. Too, the seed payment program – granted the payment is at the end of the marketing year – keeps cotton planting competitive.
Give a gift of cotton today.
Dr. O.A. Cleveland is professor emeritus, Agricultural Economics at Mississippi State University.