We’ll keep this comment from last week: another year, another dollar cotton year.
Cotton shot sharply higher this week, bulled higher by USDA’s supply demand report and a very strong export sales report. Export shipments continue to lag but are demonstrating encouraging signs. All contract months closed higher, with December closing at a life-of-contract high. The old crop contracts months all closed essentially on their respective weekly highs.
The market had a very robust week as fundamentals led prices strongly higher, highlighted by a 300-point gain in March in Friday’s trading (Jan.14). New crop December established a life-of-contract settlement high of 96.97.
Speculators have aggressively latched on to the revived cotton bull and the upward trend line. The stage is set for higher prices, but the market is overdue for a correction of 200-400 points before it begins a charge to higher ground. The easy speculative money needs to be cleaned out, thus opening the door for a stronger speculative move higher.
Old crop futures, March/May and July, look to have a high in the 121-125 cent range. Price support is rather firm in the 114-cent area. Price support for the new crop December contract is 89-90 cents with a forecast high range between 98 and 105 cents. Of course, the December will have plenty of dates with the weatherman to determine if it can move into the forecast high range.
USDA made significant changes in its January supply demand report to both its domestic and global cotton forecast. The U.S crop was reduced 660,000 bales down to 17.6 million. Domestic consumption was increased 50,000 bales, and exports were reduced 500,000 bales, down to 15.0 million. Thus, carryout was lowered 200,000 bales, down to 3.2 million. Despite the reduction in exports, the report was bullish because of the very low ending stocks estimate.
Additionally, exports were lowered due to the transportation dilemma, not demand. Thus, the market is reasoning that demand will continue to support the market in the current price zone.
Globally, the world crop was lowered 610,000 bales and consumption was unchanged. Changes in beginning stocks helped reduce 2021-22 carryover to 85 million bales – down 700,000 from last month. Thus, the reduction in both U.S. and world ending stocks was seen as bullish. Too, despite global coronavirus problems, cotton demand remains very strong and textile mills are aggressively bidding for cotton.
This week’s export report was the best in several months. The slow pace of shipments remains, but the pace does appear to be increasing. Weekly shipments have been below 200,000 bales for nearly four months. To make the USDA estimate of 15.0 million bales, weekly shipments must average 380,000 bales for the remaining 29 weeks in the marketing year.
Total net sales for the week ending Jan. 6 were 441,700 bales (upland 403,400/Pima 38,300) – the highest sales in three months. Exports were 176,900 bales (upland 167,600/Pima 9,300 bales). This represented the best weekly shipment rate in four months.
China was the primary buyer. China has been the best buyer of U.S. cotton the past two years and seems to be again for the 2021-22 marketing year. Total commitments to China so far this year exceed 3.5 million bales, of which about 883,000 bales have been shipped. Total export sales to date total near 11.4 million bales, of which some 3.6 million bales have been shipped.
Export sales to date total 11,373,400 bales sold with 3,358,400 bales shipped. U.S. shipments are 2.6 million bales behind last year’s pace. Shipments do need to increase to maintain the market’s bullish momentum.
Again, on-call mills sales are a principal key to higher prices. The latest on-call cotton report indicated there were 12,288,800 bales of on-call sales, while on-call purchases totaled only 1,777,200 bales. Further, it bears watching that on-call sales, based just on the May and July contracts, show the need to price (buy) futures contracts representing 7,230,100 bales versus the requirement of selling futures representing only 875,900 bales.
Again, the market continues – and will continue – to face very strong buying pressure. This buying pressure opens the door for higher prices. Nevertheless, the market does need a momentary 200-400 cent price setback to recharge and run again.
Our advice has us priced out of old crop and 40% to 50% priced on new crop. The new crop pricing was between 90 and 92.50 cents. The remaining 50% to 60% of unhedged new crop is gaining value and hopefully can be priced in the 98 cent and higher range. Growers should begin pricing at the current level.
Give a gift of cotton today.
Dr. O.A. Cleveland is professor emeritus, Agricultural Economics at Mississippi State University.
Πηγή: Cotton Grower