I can only repeat from last nightΆs closing comments after looking at todayΆs action: Watching cotton futures has been like watching paint dry. The December contract has traded between 84 and 85.50 for ten straight trading sessions. Harvest progress was at 5% in yesterday afternoonΆs Crop Progress report; half the 5-year average.
Until thereΆs some solid evidence of just WHEN China is going to abandon its stocks building policy and switch to price support for cotton farmers, the market is in limbo. The existence of all that reserve cotton in China (60% of the global total ending stocks forecast), keeps a permanent wet blanket on any price appreciation potential. Yet the fact that it is NOT available to the market limits downside risk as well. So if global price “stability” is ChinaΆs objective in their policy, theyΆve achieved it, bigtime.
For that reason, I have today revised my estimates of 2014 cotton acreage downward, to 10.25 million acres, about a quarter million fewer than planted this spring. Producers are well aware that todayΆs prices, while far from exciting, are actually artificially propped up by China holding all those reserves. ThatΆs an element of risk farmers donΆt have with the other alternatives to cotton for 2014; that another country could suddenly deluge the market and drive prices sharply lower with the stroke of a pen.
Many are asking themselves, “Why take that chance? At least with crops other than cotton, the assumption in current markets is that weΆll have at least average weather and the most likely “surprise” is a bullish one, that Nature is NOT cooperative next season.
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