Cotton prices continued to move higher as the two-week rally searches for a near term equilibrium point. December reached a weekly high of 88.75 cents with a weekly settlement of 88.20 cents, or nearly 150 points higher than the prior week’s high. Too, the market ended the week well above its midpoint, as well as above the midpoint of Friday’s (Nov.11) trading.
December open interest is declining, reflecting the Nov. 23 First Notice Day. Open interest will continue to fall and spread trading will dominate as the delivery period approaches. Weekly export sales, higher than the monthly average, reflected the lower prices of the first part of last week when December fell to near 70 cents. Mills were very active with contract fixations.
Too, the November supply demand report reflected lower production and lower world ending stocks. However, estimated U.S. ending stocks were increased.
It is very noteworthy that from the release of the October world supply demand report to the release of the November report that prices fell almost 20 cents, recovered, and retracted the entire decline. As has been stated in prior newsletters, 2022 has had numerous historic price runs, both up and down, and with a near record number of limit trading days.
Now that cotton trading has “settled down,” the market is working to hold the old crop December in the 85 to 92 cent range while keeping the new crop December contract content within the 75-82 cent range. The initial target for old crop December is the 89.50-90.00 cent range.
USDA increased U.S. production 200,000 bales, up to 14 million, and increased ending stocks the same 200,000 bales, up to 3.0 million. A 3.0 million bale carryover is a relatively low carryover; thus, the increased carryover was market neutral. During the coming months, carryover stocks could be increased another 200,000-400,000 bales based on potential reductions in domestic demand and/or reduced U.S. exports.
World production was reduced 1.6 million bales (700,000 in Pakistan), down to 116 million. World consumption was reduced 600,000 bales, down to 115 million. The resulting world carryover fell 600,000 bales, down to 87.3 million. This remains a relatively large carryover, but the share of carryover held by cotton exporting countries fell. This implies an improved potential for U.S. exports once demand can be rebuilt. Yet, improved demand is likely some six to nine months away as world economic growth is expected to be stagnant for at least six more months.
Growers are reminded that quality remains a key in the demand equation. The open weather during the 2023 harvest has acted to enhance the quality of U.S. cotton. The USDA loan premium will be boosted by the additional quality premium required by growers to tender cotton.
The new crop December contracted surged to nearly 80 cents, challenging its weekly high of 79.74 cents and settling the week at 79.56. Growers are cautioned that market trading will likely be limited to within 300 points, higher or lower, of current prices during the coming month and likely into late December. The market has moved past peak harvest and should consolidate around current prices as it awaits cycle highs in late December to mid-January.
Give a gift of cotton today.
Dr. O.A. Cleveland is professor emeritus, Agricultural Economics at Mississippi State University.
Πηγή: Cotton Grower
