Even the low 80’s proved to be too much for Icarus’s melted wings to power through the market this week as both the old crop July and new crop December succumbed to last week’s flight to 88 cents last week. The market sell-off pulled prices back into the high 70’s, nearly falling to the mid 70’s at week’s end before market sentiment brought July back to a weekly settlement of 77.40 cents. Likewise, the new crop December contract fell as low as 77.76 before climbing back to a weekly settlement of 80.50 cents.
Nevertheless, while U.S. carryover and expected 2026 production appear to be in surplus, world carryover and world production are expected to fall marginally short of expected world consumption; thus, prices appear to be at an equilibrium level going into the final month of planting across the northern hemisphere. Yes, there will be some northern hemisphere plantings as late as August, but by far, most of the northern hemisphere crop will be planted within the coming 30 days. While there remain some drought-stricken areas, most regions appear to be manageable at this time of the year. Certainly, the High Plains and Rolling Plains can always use moisture. China continues to fight cool weather and sandstorms, but it always does at this time of the year. Thus, there are no notable world production concerns. Yet, it is important to remember that world consumption is forecast to outstrip world production during the 2026-27 marketing year, causing the market to cast a keen eye on production progress during the entire crop growing season.
Just as the 88-cent level touched last week proved to be too high for the market to maintain, it is expected that the mid70’s will prove to be too low for the new crop December contract in the coming weeks. The old crop July does have risk slightly below 75 cents, but will have impetus to trade from the 76 to 80 cent level. The July futures contract does have more downside risk than the December contract. July has been supported by an imbalance in on-call sales versus on-call purchases. That imbalance is beginning to weaken as mills have become active in price fixing. Additionally, demand has been lacking all year and is showing sign of further deterioration as U.S. export sales are slowing.
Some will note that such a decline is seasonal, and it is; however, what demand there is should find its way to the Brazilian market instead of the U.S. as Brazilian growths are some 3 to 5 cents below comparable U.S. growths. Additionally, certificated stocks on the New York Cotton Exchange have become overburdensome, and some find that the best price they can find is the futures market and not the cash market. That is a clear signal that futures are overpriced. Thus, while the 76-cent level offers strong price support for the July contract, failure to hold that level opens up a drop to 71-72 cents.
Some cite the Consumer Sentiment Index as being very bearish for the general economy. Yes, the Index has been down for three consecutive months and is at an all-time low. However, the report is very misleading. For instance, the three all-time lows in the Index have corresponded to all-time highs in the U.S. stock market. The report is classified in monetary language as a “soft report” and is not considered to be an economic indicator, much less an economic indicator. The lesson: Do not use the report as a measure of economic health of the consumer. That is, presently the Index is at an all-time low, and actual consumer spending is at an all-time high. The Index is a political index and not an economic index.
Another general economic misnomer. Some have suggested that new FED Chairman Kenneth Warsh’s position advocating a strong dollar is bad for agriculture, as a strong dollar implies that U.S. agricultural goods will be more expensive in the export market. Such a conclusion is in a vacuum, a very leaky one at that. The importance of a strong dollar is that it stands as the major tool used to fight inflation. The stronger the dollar, the lower the cost of agricultural production compared to other currencies. Always remember, inflation is the principal detriment to any country’s economy. Thus, any government should advocate for a strong currency.
Growers should complete pricing of any remaining old crop. The risk of lower prices relative to a higher price in the coming three weeks far outweighs the opportunity for a higher price. Price any remaining old crop now. New crop will continue to work the 80-cent level, give or take 300 points. Remain at one quarter to one third priced, at least. The U.S. crop appears larger than the recent USDA report.
Give a gift of cotton today.
Dr. O.A. Cleveland is professor emeritus, Agricultural Economics at Mississippi State University.
Source: cottongrower.com