By Jeff Thompson, Autauga Quality Cotton Association
Have mercy! USDA finally delivered a monthly WASDE report that didn’t rock the world. Consequently, the market barely batted an eye staying firmly entrenched in its long standing trading range of 66 to 69 cents. Compared to the previous two months, the October numbers were seen as market neutral.
Nonetheless, the U.S. crop is estimated to exceed a bearish 21 million bales despite being reduced by over half million due to hurricane losses, though some question the full accountability of these storm losses. A lofty number, but if early yields can be maintained it’s one that is certainly within reach.
Despite the lateness of the crop and intermittent rain showers, harvest is progressing rapidly. Over a third of the U.S. crop has been gathered with yields unsurpassed in many locations at the same time as fiber quality once again is proving to be exceptional. We’ve been quite hard on seed companies over the years in these commentaries and still question the exorbitant pricing structure.
However, there is no arguing the fact that they have provided us varieties with the horsepower to deliver the yield and quality of which we could only dream of before. Granted, Mother Nature will play a pivotal role, but if the remainder of this crop can be harvested unhindered it could provide the perfect combination to buffer current prices.
On a larger scale, the global numbers in this month’s report were found to be just as neutral. A small increase in production was offset by a somewhat larger increase in mill use to reduce world ending stocks ever so slightly.
There still remains some question as to the accuracy of these ending stocks numbers, especially where China and India are concerned. Most in the trade feel current numbers are off by several million bales, which if proven to be true could greatly enhance global demand to our benefit.
As we’ve said before in the midst of a potentially large crop, demand will be the driving force as to the direction this market takes over the next few months. That being said, in the short term, look for prices to remain steady. The scarcity of cotton in the pipeline will support December.
Also, though fundamental data is encouraging the spec community to sell the market, their actions are for now being countered by mill fixations and the subsequent buying of the market that follows. This tug of war warrants a wary eye going forward as the actual crop size becomes clearer and March becomes the front month.
The current bias is for prices to trend lower as harvest season nears completion. Currently, we are seeing a strong basis being offered on recaps of high quality cotton, as much as 250 to 350 point premiums.
Consider it an excellent pricing opportunity, if the combination of basis and futures price can net over 70 cents. Such premiums could be short lived if quality fiber is readily available.
I know it’s difficult to focus on next year while occupied gathering this year’s crop. Nonetheless, some new crop contract terms have begun to circulate. We at, Choice Cotton, would welcome the opportunity to work with you in researching, advising and obtaining those best suited for you. As always, our objective is not to buy your cotton, but rather help you sell it. Contact us at 334-365-3369 or e-mail reply if we can be of assistance.