The July and Dec contracts posted notable weekly wins for those of bullish persuasion gaining 266 and 422 points, respectively. The old crop/new crop straddle weakened to 256.
ICE July cotton futures popped higher to challenge the 90.00 level on Mon before reversing to finish significantly lower. July traded lower most of the week before showing signs of life to finish ahead of the long Memorial Day weekend, challenging Monday’s high. Dec moved significantly higher on the week, taking out the 85.00 level rather easily and challenging 87.00, setting up a plausible run at 90.00.
Total net export sales were significantly lower Vs the previous sales period (2017/18) while shipments were off slightly at approximately 53K and 431K running bales, respectively. Still, shipments continue to eclipse the weekly pace required in order to match the USDA’s 15.5M bale export target. Total sales against 2018/19 stand at a running total of 4.4M 480lb bales.
We’re currently holding our projection of 2017/18 exports at 16.4M 480lb bales.
Internationally, this was a slow week for cotton news. Droughty conditions persist across northern India and Pakistan, although the annual monsoon is expected to commence across southern India late this month.
Domestically, most areas within the West Texas region have received some rain but have not realized sufficient accumulations on which to begin a crop. Hot and dry conditions are forecast for the region over the near-term. Frequent showers have helped a fine looking Delta crop while rains across the deep Southeastern US have slowed planting progress, with the first tropical event of the season poised to drop more rain on the region over the near- to medium-term. Given the region’s recent parched soil profiles, we think it is a bit too early to relegate too much moisture as a bullish market event.
In geopolitical news, last week officials from N Korea balked and condemned military exercises between the US and s Korea and further stated that it was no longer interested in negotiations with the US if the sole purpose was denuclearization of the Korean peninsula. This week North Korean officials called Vice President Mike Pence a “political dummy” and quasi-threatened the US with a nuclear confrontation.
The latter two points resulted in President Trump’s withdrawal from the summit.
Still, North Korea officially destroyed it’s top (reportedly) nuclear testing sight and invited international journalists to watch. By week’s end President Trump’s statements hinted that the summit could again be in the offing.
The takeaway is this: via association, the matter with North Korea places additional scrutiny on trade negotiations between the US and China regarding tariffs and trade, which President Trump has already stated were not thus far to his satisfaction. In reality, the breakdown between North Korea and the US is likely (at least in part) due to China, which very much wants to figure into any negotiations between North Korea and the US – too many capitalistic economic incentives offered to North Korea would not send the correct message around the world about one of China’s allies.
For all that, Kim Jong Un clearly loves the limelight and the recent skirmish of words between his regime and ours could be akin to the nerdy kid at school suddenly becoming popular (for whatever reason) while not knowing how to handle said situation. Maybe he’ll catch on.
We are not certain as to if or how the Harvey Weinstein case will affect our market.
Producers had a good week on the futures front, and with the forward contracting basis still friendly, there hasn’t been a bad place to price cotton in the past week. Going forward, there is a growing consensus that the December target is in the 88 to 90 cent level, and producers will be playing a game of chicken with long speculators whose profits grow more tempting every day.
In addition to a seemingly unstoppable rally and widely varying planting conditions, producers should be paying attention to the ongoing farm bill drama in the House.
While some cotton producers may have been lulled into complacency by the inclusion of seedcotton into Title I of the current farm bill, they shouldn’t assume a simple continuation would be good news. If you haven’t visited with your representatives in Congress, this weekend would be a great time to do so. Many congressmen will be in their home districts for Memorial Day activities, and it’s hard to be more effective than talking to a member of congress in person during an election year.
For next week, the standard weekly technical analysis for and money flow into the July contract remain bullish, with the market now overbought. On-call data suggest that strong potential for market spikes against the July remains in force, with scheduled rolling of index fund net long positions to commence on Wednesday, May 30 per the Rogers roll.
Have a great – and safe – holiday weekend!