By O.A. Cleveland, Consulting Economist, Cotton Experts
Cotton prices were momentarily excited this week as initial projections had tropical storm Nate headed for the heart of the big Georgia crop as well as the central/southern portion the Alabama crop. Once that changed the market fell back to protecting its 68 cent base building efforts. Yet, threats of a drop to the 67 cent level cannot be discounted as the five cent, 65-70 cent range will continue be worked.
As stated last week the price bias remains lower, down to the 65 cent support. Today’s known fundamentals suggest the market will have its hands full holding 65 cents, but next week’s USDA release of the October supply demand report will likely solidify the 65 cent base and allow prices to return to the upper end of the trading range. Nevertheless, the technical indicators still have sell signs written all over the market.
My season long belief that the 65 floor would hold was built on long range weather forecasts that have to date proven correct. Some feel the long range forecasts are nothing but pie in the sky. Yet, such forecasts have proven to be extremely accurate worldwide for 3 consecutive years and have an excellent history over the past 5 years. As coach says, keep calling the same play as long as it works.
There are a hatful of reasons to be bearish in this market, but my thoughts are that most are discounting the improved cotton demand that has surfaced…and demand leads markets higher. That being said, I would be remiss not to advise you that the merchandising community is not bearish, but rather very bearish. At least one international merchant is suggesting New York is at least 1500 points too high, or even more. Yes, that is 15 cents. I can build a bearish scenario, but not anywhere near that bearish. I just cannot – since Asian demand is enjoying a resurgence.
Other leading merchants are advising mills to wait and fix prices at a lower level. The sentiment for a trading range from the mid 50s to the low 60s runs rampart. I will just have to eat crow again. I just don’t see it. Of course, those same mills were slaughtered in the market last year by waiting and hoping for lower prices that only went higher. Too, some of the same signs are beginning to show again. Mills should pay attention to the CFTC Cotton On-Call report. Oncall sales have increased now for the fifth consecutive week. We cautioned 3 weeks ago that the export market had begun showing signs of weakness. Hopefully, such is short term in nature, but export weakness has continued for 3 consecutive weeks without any sign of improvement.
Too, the Gulf ports remain under repair as a result of Harvey, and are clogging the already reduced flow of shipments. Mill inquiries are abysmal compared to past months. Unlike last year, mill basis is changing while futures prices are somewhat locked in place. The debate surrounding the U.S. crop size continues. Too, the crop outside the U.S. is getting larger.
I am of the opinion the U.S. crop estimate will be lowered some 1.0 to 1.5 million bales, but at least one analyst has it only 300,000 bales lower. Yet, it will be difficult to argue with the NASS estimate to be released Thursday by USDA. But remember, the report will be based on conditions as of October 1. The report will, for the first time, incorporate losses from both hurricane Harvey and Irma. However, even that crop estimate will eventually be lowered due to hurricane Nate. That impact can still range from minimal to upwards to 250,000 bales depending on Mother Nature’s final course. However, the Nate impact could be related more to quality rather than quantity. Yet, its impact will not be reflected in the report.
More importantly, the effects of the past 10 day wet cool spell on the very important Texas High Plains crop will not be reflected in the October report. Most are already estimating that loss to be from a low of 400,000 bales to a high of 800,000 bales. Thus, the market will second guess the Thursday, October 12, NASS estimate. In fact, the market already seems to be trading such a loss as evidenced by the Friday trade back above 69 cents.
Even in light of the great anticipation of the October report, the November report is already drawing attention simply because it will be all telling about the big-big Texas and Southwest crop. This is the crux as to why the market is able to hold close to 68-69 cents in spite of the worldwide very bearish attitude toward cotton prices. The Kansas crop is looking at temperatures in the 30s; West Texas and Oklahoma will see the 40s.
There are a few troubling days in front of us. My advice to growers, look to price at 70 cents. My advice to mills, price on any move down to 68 cents. Said another way, I have already said it: The 65-70 cent trading range will continue. Merchants appear to be working overtime to put carry back in the market. That is, they are trying to force December under March. The bids and offers on the ICE reflect their subtle approach. Likely they will succeed once the October report is released. However, it should be noted that a greater than average portion of U.S. plantings were late this year.
Mother Nature has and continues to send clear signals that she will only offer a troubled and delayed harvest. Such a combination speaks to both a quality and quantity damaged crop with more uncertainty in front of us. Yet remember, U.S. cotton, because of its adherence to quality, has been elevated to a greater importance in the world share pecking order. This will be a difficult year, but the U.S. will maintain its new share of the world market and the next several years offer even greater promise as the world demands more cotton.
Πηγή: Agfax