The demand bug will just not go away. Cotton is desperately searching for market share and continues to be battered by acid-based polyester, as well as the ever-growing promotion of another high rising competitor, bamboo fiber. Coupled with good showers across most of the U.S. acreage, prices took a nosedive as the July 4 Independence Day celebrations ended.
If those major factors were not bearish enough, U.S. economic data showed that manufacturing jobs continue to be lost and that the only real job growth remains in government. Just when prices appeared to find support at the 72-cent level, the much needed and welcomed rain showers over the U.S. and the monsoonal activity across India increased the possibility of increased U.S. and world carryover stocks, heavily weighing on the market.
Friday’s (July 5) market response took new crop December futures prices 138 points lower. The weekly settlement ended at 70.98 cents, below the important 71-cent level as prices fell 171 points on the week. This opens the gate for near-term trading to fall as low as the 68-cent level. Prices will chop lower throughout July.
The 2014 crop, the 2024-25 marketing season, is set up to be one that requires growers to price extremely late in the season to cover production costs. Current prices are near the cost of production for very few growers. However, for most growers, prices are well below the cost of production. Thus, growers are faced with a difficult challenge to extract a profit. Therefore, most growers will find it necessary to market their crop out of the CCC loan program.
The market is very strongly suggesting that both U.S. and world stocks will substantially increase during the marketing year. The typical price pattern the market is expected to follow is one of declining prices into the October harvesting season. Once past the northern hemisphere peak harvest, prices should be expected to increase at a gradual rate. The rate of increase will be highly dependent on U.S. and world economic recovery, if any.
Most economists agree, however, that economic recovery will not occur until the first or second quarter of 2025, if, in fact, the U.S. is able to gain control of inflation by then. The price level suggests that the CCC loan program will be responsible for storage costs, thus requiring growers to keenly watch price movement and not become responsible for paying storage themselves.
Additionally, cotton has not demonstrated that it can halt the runaway decline in its share of the fiber market (apparel sales). Thus, growers are forced to postpone pricing until demand can be uncovered.
U.S. exports sales totaled only 115,400 bales, with China and Vietnam being the only real buyers. Shipments were 175,800 bales, significantly below the level needed to reach the USDA export estimate. The Cotton On-Call report currently indicates that prices will trend lower into November, as on-call purchases (grower selling) has far outpaced mill demand. Likewise, mills have opted for the option of delaying price fixing of cotton as long as they can.
Moisture across the vast dryland cotton acreage of the U.S. Southern Plains, while being a major factor in contributing to this week’s weaker prices, only partially alleviated the generally unfavorable crop progress to date. While prices may fall into the mid to high 60s, the Southern Plains will be pressed to harvest a normal crop. Thus, market prices should have the opportunity to halt any decline into the high 60s and again challenge the 75-cent level.
Give a gift of cotton today.
Dr. O.A. Cleveland is professor emeritus, Agricultural Economics at Mississippi State University.
Source: Cotton Grower