Bulls wound up winners on WASDE week, with the May contract gaining 243 points to settle at 84.52. The May – July spread finished inverted at 33 while the old crop/new crop straddle remains strongly inverted at 547. The Dec contract continues to make new highs, finishing the week at 78.72.

We unintentionally missed an update in this space last week, in part because of our attendance at the annual Mid-South Farm and Gin Show. Still, a break seems to do most folks some good, but this is not a guarantee that this column has markedly improved over the last fortnight.

This was a week heavy laden with data releases and news pertinent to agriculture, including cotton. In its Mar WASDE report the USDA lowered its US production estimate to 21.03M bales Vs 21.26M in Feb. This is only the second time this century that the USDA has made a production estimate adjustment in Mar. Given that, at the time of this report 86 gins were continuing to operate within the US, we think the reduction may prove to have been immature. The official US export projection was enhanced 300K bales to 14.8M.

At the world aggregate level, the USDA increased it production estimate and significantly increased its consumption estimate. Still, world C/O was projected 300K bales higher Vs Feb.

US export data for the week ending Mar 1 featured very strong sales data against both MYs and a MY high shipment figure. Total net sales and shipments were approximately 393K and 551K RBs, respectively. We continue to project 2017/18 exports at 16M 480lb bales, a figure that is rather conservative to some figures that have been publicly displayed recently by respected cotton pundits.

The Dec contract continues to impress, with its 21st positive close in the past 23 sessions, and 80 cent predictions no longer seem to be the result of too much time at happy hour. We saw a flurry of producer sales and fixations around the 78-cent mark, but that activity had slowed substantially by the end of the week.

For most of the last 6 months, it has seemed reasonable to argue that producers should have 50-70% of their crop priced by early June. That’s still a good conservative strategy, and no one has ever gone broke making a profit. But we’re not as convinced as we previously were that a big crop is either in the making or will send futures back to the 60s this fall.

On the bullish side, continued strong demand and consumption have some merchants and analysts questioning just how bearish projected carryout numbers are. One merchant friend of ours recently opined that large carryouts could be the new normal, and that they could prove essential to keeping cotton in a long term sustainable 70-85 cent range. Similarly bullish is the continuing drought in North Texas. With no rain in the 10-day forecast, but plenty of wind and sunshine, the 2018 crop faces a tough start.

But the bears still have a few cards to play.

As much as we talk about the need for more inventory, both the NCC and the USDA have projected very large carryouts, and the historical record is pretty clear on what that says about the market this fall and winter. Throw in a few well timed rains in Texas, and bulls could be hard to find. Another factor worth considering is the extended bullish run we’ve seen in the Dec contract. Our last negative close was Feb 15, and there is a lot of profit in the Dec contract just waiting to be realized.

Perhaps the issue that clouds our crystal ball the most is the issue of tariffs and trade. President Trumps recently announced tariffs on steel and aluminum has thus far had little to no effect on cotton. Turkey has threatened to retaliate with a tariff on US cotton, but the fact that a substantial portion of Turkey’s purchases are already on the books means a tariff would prove primarily symbolic. The EU is currently considering tariffs on orange juice, bourbon and Harley Davidsons, but that announcement seems more targeted at specific members of congress than designed to do real damage to the US. The biggest potential impact for producers from the metal tariffs currently looks to be a potential increase in the cost of implements.

Arguably the biggest risk from the recent tariffs is that President Trump’s unpredictable negotiating style and protectionist rhetoric could cause international consumers to reconsider their preferences for US cotton. Unfortunately, even our best proprietary modeling software can’t tell us how that will shake out.

For next week, the standard weekly technical analysis for and money flow into the May contract remain supportive to bullish, with the market no longer in a technically overbought condition. China is slated to commence 2018 auction sales from its reserve stockpile next week, and results thereof will be closely scrutinized. Traders now have the weekly export sales reports and new information regarding retaliation against the recent imposition of US tariffs on steel and aluminum imports to assess and anticipate while waiting for the USDA’s annual Planting Intentions report to be release at the end of this month.

One final note – as this goes to press, at least one of the authors of this report is wearing blue jeans and a polo shirt that were grown, spun and sewn in the US. A quick internet search will find a number of companies now marketing “grown and sewn in the USA” cotton clothes, and this is the most encouraging thing we’ve seen for US cotton since the death of the leisure suit. We encourage you to try them out, and proudly wear US cotton.

Have a great weekend!