The Ides of March held prices in the low to mid-90s – a price that begs for more cotton. The market says it is hungry, and the only way to feed high prices is to give the market more cotton.
My long-standing comment is to “feed a hungry market.” The only problem, there is little cotton available for shipment at the present time. The U.S. is effectively sold out. The big Brazilian and Australian crops are not ready just yet. Some two thirds of the available supply are in China and India are not actually available for world trade. Thus, Brazilian and African old crop are feeding the market presently.
China holds its cotton for its own mill use and buys in the export market to bolster its reserve stocks. They are very accustomed to holding cotton in storage for some four to six years. The Indian supply is mostly available only to Indian mills given the big appetite of the world’s second largest spinning industry, although they do export a small portion of their production. Yet, little is currently available for export. Thus, the New York ICE will continue to hold the attention of the speculators who pushed prices into the 90s, as the taste of the magic dollar level remains in their thoughts.
The fun is not over, but the likelihood of touching the dollar mark has likely passed. Technical indicators will allow for another run to the dollar mark and even a tad higher, but fundamentals do not align with such a rally. It is time for growers to take advantage of the market’s current blessing and move on to their thoughts of marketing their 2024 crop.
The May futures contract has some five weeks before first notice day, and it is those coming weeks that hold the remainder of any safe passage of capturing a price in the 90s. There will be a little of the new crop Brazilian and Australian cotton available to help bring down the July futures contact. Granted, not much, but enough when coupled with the scant New York deliverable stocks that will likely pressure the July futures below the dollar mark – and even more likely to pressure it down into the mid-80s.
Of course, that does assume Mother Nature does deliver her normal weather patterns across the northern hemisphere cotton plantings. However, it is fair to ask, “What is normal anymore?” That is, the oncoming southern hemisphere crop and the few certificated stocks, when coupled with the speculators desire to walk home with their profits, will leave the New York July contract with sellers outnumbering buyers.
One is tempted to note what are particularly good U.S. export sales on the face to prices that seemingly are too high for mills to operate with a positive margin. Yet, the increase in on-call sales, basis the December futures contract, coupled with the textile mills’ own admission that the sales are generally being made based on the low to mid-80s of the December contract rather than on the May/July 93-cent price.
Additionally, while China is still buying cotton, Chinese mills report that they are flush with raw cotton stocks and that their yarn inventory has become burdensome – a clear indication that price fixations will be based on the December futures contract and not on the nearby May or July futures contracts. Nevertheless, on-call sales that are already on the books should be adequate to maintain futures trading on the May contract to hold above the 92-cent level.
The spread between the July futures price and the December futures price is currently 991 points. That spread will likely tend to drop to 100-200 points. Will they tend to move in opposite directions toward convergence or will the bulls/bears have their way? This price bridge between old crop and new crop is trending in favor of the bears due to ongoing demand issues with cotton.
We continue to suggest growers be aggressive in pricing the 2024 crop on a move to 85 cents in December futures.
Give a gift of cotton today.
Dr. O.A. Cleveland is professor emeritus, Agricultural Economics at Mississippi State University.
Πηγή: cottongrower.com