The reopening of the USDA has resulted in the first confirmations that US cotton moved in volume during the shutdown. However, Brazilian cotton has also sold in volume. One common feature between the two - cheap basis. Merchants want to move the 2018 Brazilian crop before a record 2019 crop arrives in about seven months. Brazilian cotton is stored outside on pallets under tarps, which is not conducive to long storage periods. Moreover, the large volume sold under pre-finance terms means the receivers want to turn it into cash ASAP.
Last week, Brazilian 2018 and 2019 crop both sold in volume, as merchants were willing to discount basis levels in order to move them. US basis levels remain cheap, as quality discounts drive sales. The USDA released sales data for the week ending December 20th that indicated brisk sales of 373,100 running bales of upland and 7,800 of Pima for 2018/19 shipment. There were no surprises in the report. Vietnam was the largest buyer, but the Subcontinent was also active, with Bangladesh, Pakistan and India all buyers. Turkey was back in the market, and even a small volume moved to China.
As of December 20th, total US export sales were good at 11,082,792 480 lb bales, but the issue concerns shipments, which remain well below the needed level to meet export targets. Shipments totaled only 207,100 running bales of upland and 14,200 of Pima, while the US needs to ship 363,182 bales a week to meet USDA targets. Shipments to Turkey have totaled just 5,400 bales of Pima and 172,000 bales of upland, but the US needs to ship at least 1.5 million bales. There are 1,178,100 bales of upland and 109,900 running bales of Pima that are sold but remain unshipped to China.
Brazilian 2018 and 2019 sales of Strict Middling 1 1/8 and M 1 1/8 are now popular with Asian spinners. Merchants have discounted SM 1 1/8 sales to 800-850 points on March, which is below the offering levels out of most shippers. New crop sales for September- December have been noted at the same levels, and Indonesia, South Korea, and Thailand have all been mentioned in turnover. Pakistan remains focused on discounted US styles. As ginning of the 2018 Brazilian crop has progressed, the quality of the 2018 crop has become more mixed, with color grades appearing in merchant offers that are an assortment of Middling Light Spotted, SLM Light Spotted, and Middling Spotted at further discounts. Mexican 2018/19 crop offers also continue at a discount to both Brazilian and US styles, and most current offers are for Middling 1 1/8 and lower qualities.
For the US, the hurdles are increasing shipments and maintaining steady volume sales to Turkey, the Subcontinent, and the access to China for the remaining sales, which were all made at much higher prices. The ability to move US shipments back above 350,000 bales a week will be a challenge given the recent government shutdown and its impact, with CCC loan entries and redemptions slowing progress. We continue to see challenges with export shipments moving past the 13.5-14.0 million bales level.
Source: Jernigan Global