I thought that last weekΆs column was going to be difficult to write, especially in the absence of the regular government reports that we so often refer to and benchmark our analyses against. We had the failure of tropical storms and typhoons and the bearish estimates of US firms and foreign governments to refer to, but this week, was rather bland for Dec 13 as well as the rest of the ICE-traded cotton market.
The big news, of course, is that the US government will now remain open until Jan, 2014 and it can borrow money to operate until Feb, 2014, and with that news the USDA returned to work. The information has just begun to flow through the pipeline, so there is not much to talk about just yet. The next scheduled release for WASDE and Cotton Ginnings reports is Nov 8.
Dec 13 began the week at 83.51 and finished it at 83.11, giving up 26 points off of last weekΆs settlement and trading a very tight 183 point range – a range that would not be at all uncommon on any given normal day for the front month.
We had called for a 300 point trading range in last weekΆs prediction (83.00 – 86.00) with an acknowledgement that price could trade lower, which, of course, it did. Just south of 50K contracts were traded for Dec 13 this week vs 75K+ last week. Dec 13 open interest (OI) dropped approximately 5.6K contracts while Mar 14 OI increased approximately 2.5K.
Given such numerical evidence, we have heard of brokers advising their clients to move longs to Mar 14 in order to avoid a potential squeeze on Dec 13.
Still, for all of the recent weakness in Dec 13, it has not closed below 83.00 during the grind-down and it has rebounded briskly from levels below 83.00. And, since the 900+ point collapse from a daily high of 93.74, Dec 13 has entered a consolidation pattern, giving up only 97 points over 9 weeks. The trend, per the 30-week regression channel is, for all purposes, flat.
Going forward, traders will have some bearish news to consider. Although the export report for the week ending Sept t 26, released this afternoon was not bearish, the prognosis for the report for the week ending Oct 3 may be.
For the period in question approximately 117.3K RBs of net sales were recorded against approximately 12.7K RBs of cancellations; 20.9K RBs of ELS-type cotton is included in the net sales figure. Net upland sales were up approximately 4% from the previous period, and shipments were respectable at 108.2K RBs.
The average price for the sales period was 84.66 with a range of 84.07 – 85.58; the average price for the sales period for the week ending Oct 3 (report to be released Oct 24) was 86.95 with a range of 85.48 – 87.78. Hence, we doubt a large improvement is sales will be noted on the Oct 3 report.
Certificated stocks have grown to over 50K bales and should easily cross the 100K mark early next week. Further, the Dec 13 Mar 14 spread, while nowhere near full carry level, continues to weaken day-on-day.
On a daily basis, Dec 13 is technically weak; on a weekly basis, the recent consolidation notwithstanding, Dec 13 is far from strong.
More positive notes are also present, as well. We are all but certain that the Crop Progress report, scheduled for release next Monday afternoon, will evince how woefully late this seasonΆs cotton crop is, and, if crop condition is assayed, we think it will show a downgrade per the various indices that are derived from USDA data. Another positive note for cotton is the recent weakness in the US Dollar Index, which has recently traded well below the 80.00 level.
Further potentially positive news was released today from the USDA attaché in India today, who has reduced his estimate of the current Indian crop by 400K bales to 28.6M. However, the USDAΆs attached in W Africa has increased his production estimate for a group of aggregated nations by nearly the same amount.
And finally, a factor that will not be fully addressed with any certainty for sometime is the size of this yearΆs US crop. Private estimates have recently trended higher than the latest USDA-NASS published estimate (12.9M bales). However, the latest USDA-RMA (crop insurance) data now shows that the US upland crop has a loss ratio of 92% (92% of premiums paid out in indemnities) and the TX upland loss ratio now stands at 131% vs 121% the last time data was made available.
We realize much of the loss was in prevented planting and abandonment, but loss ratios trending upwards are not indicative of an overall crop improvement.
For this week we will call the range at 82.00 – 86.00 on the inside and 81.50 – 87.50 on the outside with an upward bias, directionally. Although we think it is a stretch to cover the first overhead GAP at 87.12 – 87.18, it is within the realm of realistic possibility.
Louis W Rose IV, PhD has worked with cotton as a producer, consultant, analyst and trader. Rose holds degrees in Education, Agriculture, Plant Science and Business (MBA) from AR St Univ, OK St Univ and the Univ of Memphis, respectively. He has held positions with Aon Reinsurance and Cargill Cotton. Rose currently provides analytic services for various clients and media outlets and is the co-founder of Risk Analytics, LLC, producers of The Rose Report, which he authors. For more info on The Rose Report or analytic services, please visit: www.rosecottonreport.com.