By Dr. O. A. Cleveland
This weekΆs USDA June supply and demand report was “much ado about nothing.” The global and U.S. economies were better, on paper, at least. Ah, but cotton fundamentals shot a lightning bolt through the cotton market. Finally, cotton prices advanced on supply demand news relating to cotton. The week ended with the old crop July near 80 cents and the new crop December above 71 cents. December continues to be bracketed between 65 cents as a low-end and 75-78 cents for a top. However, clearing the 72 cent barrier will be a major chore.
Cotton has generally been higher for the past week and a half. The Thursday release of the weekly exports sales report provided the answer. While news of a strong export week was rumored all week, the market was not prepared for the actual news. Export sales for both crop years totaled over one million bales.
Current year sales for Upland were 795,700 RB. Sales of Upland for the 2012-13 marketing year were another 219,600 RB. The vast majority of all sales were to China. My interpretation: the Chinese mills feel the market bottom is in. Yet, the sailing seas will continue to be rough for any attempt for prices to advance at this time. Demand must improve, or significant crop problems will have to occur if prices are to hold current gains in the near term.
Market prices also received a small boost from dry weather conditions on the Texas plains. Granted, Texas has better moisture than a year ago, but subsoil moisture is still very weak to nonexistent. The hot and dry temperatures, coupled with the traditional West Texas winds, have the ability to suck dry what little topsoil moisture is held in the soil. This will be an issue all year and timely rains, in addition to supplemental irrigation, will be necessary to maintain that crop.
USDA will also release its June Plantings report in two weeks. This weekΆs June supply and demand report suggested 13.1 million planted acres would be planted to cotton. Recall the March Intentions report was 13.1 million bales. Most are looking for U.S. cotton plantings to be revised lower to 12.8-12.9 million acres. I favor a 12.8 million acre estimate.
The strong bounce in December is likely a bit premature and a slippage below 70 cents is problematic. While I continue to like a December challenge of 75 cents, the market is ripe for a little back tracking in the absence of another million bale export week.
Cleveland is a Professor Emeritus, Department of Agricultural Economics, Mississippi State University.
