The cotton market was under pressure all week but worked through tripled digits on most days. However, in terms of prices, the bears were the decided victor as prices slipped to almost the 87-88 cents level, basis May, and to 84-85 cents, basis the new crop December contract. Yet, the weekly settlement proved cotton to be a strong market finisher.
U.S. export sales continue strong, and export shipments continue very strong. The old crop/new crop spread moved to its tightest level of the year. Additionally, on-call sales continue to offer good fundamental news for the bulls.
The slight selloff on the week was laid at the feet of (1) a volatile and skittish equity market fueled by the Fed’s comments regarding inflation, and (2) the slippage of Chinese cotton prices, basis the ZCE. Textile activity around the world has not slowed, and mills are presently seeking cotton on an as-needed basis.
The on-call sales versus on-call purchase ratio favors higher prices for both the May and July contracts. December will continue to follow the old crop contracts. There is mounting concern about Texas drought conditions, so look for the old crop contracts to again challenge the low 90s and to pull the December back to the high 80s.
U.S. export sales slowed but remained above the level required to reach USDA’s shipment level of 15.5 million bales. In fact, one should expect USDA to increase its estimate of U.S. export exports in March’s supply demand report. Weekly net sales totaled 218,400 bales, including 40,600 bales for marketing year 2021-22, Pima sales of 7,800 bales and upland sales of 169,000 bales for the current year.
Some 16 countries were buyers of U.S. cotton, and six purchased at double-digit levels. Primary buyers were Vietnam, China, Pakistan, Indonesia, Turkey and Bangladesh. Export shipments were an impressive 386,500 bales, consisting of 377,400 bales of upland and 9,100 bales of Pima. Vietnam, China and Pakistan were the primary shipment locations. Shipments should remain impressive.
The cotton market outperformed the grain markets during the important month of February – the month most growers make final planting decisions. Granted, some planted acreage adjustments occur in March and even in April, but only at the margin. The 2021 cotton plantings “insurance price” will be the highest ever. Thus, Texas and Southwest plantings should remain near level with 2020 plantings with even a slight chance of increased plantings despite the potential for widespread drought in Texas.
Cinco de Mayo remains the needed rain date for South Texas, and June 1 is the million-dollar rain dance day in West Texas. Thus, Mother Nature has plenty of time to bless those regions with her rainfall. Expect 12.0 to 12.2 million acres of cotton to be planted in the U.S. in 2021. Some are estimating that plantings could reach as high as 13.0 million acres. That is a bit high, but timely moisture could get that much.
USDA will release its monthly supply demand report on March 9 at 11:00 am Central time. The report will be discussed on the monthly Ag Market Network Cotton Market Roundtable teleconference at 1:30 pm Central time that day. Joining me in the discussion will be Dr. John Robinson, Kip Butts, Jarral Neeper and Pat McClatchy. To listen to the discussion live, call 605-313-5148 and enter code 571052. An archived recording will be available after the broadcast.
A mildly bullish report is expected.
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