China, volatility, on-call sales, shipping backlog, and late harvest remain the buzz in the cotton market.
Contrary to the opinion of a few traders and speaking to the total of the textile mill sector, the cotton market is neither tanking nor headed anywhere but up. The market is consolidating its price activity within the five-cent range around 108 cents. The bull continues to graze and likely will for a few more months, some black swan event notwithstanding.
Washington with all its economic foolishness, and the saber rattling between various countries could add a negative tone to an otherwise robust cotton market, but it is doubtful. The market remains range bound between 104 and 113 cents – give or take 150 points or so. That range should hold into the USDA November supply demand report.
The typical first killing frost in West Texas is fast approaching, and it does not appear that an early freeze is in the mix. Of course, given the various stages of growth facing the crop, an even later first freeze date would be beneficial for yield and maturity. That holds true for the Mid-South and Southeast as well. Thus, the importance of the November supply demand report.
Export sales on the week were very excellent, but the market’s response was near limit down as the speculators’ “buy the rumor, sell the fact” scenario came into play. That is, China showed up as a major buyer, as expected. Once confirmed, some speculators felt the Chinese buying was near over and sold their positions, thus creating a near limit down market response.
However, it is highly likely, as we have emphasized, that China is still in the market and will continue to purchase U.S. cotton in bulk. After all, U.S. cotton at 110-120 cents is well cheaper than Chinese cotton. Too, based on the styles of cotton offered for sale by the Chinese Reserve to local mills, the Chinese stocks are of questionable quality. Thus, it is reasonable to expect China will purchase as much as 500,000 to 750,000 more bales from the U.S. during the remaining nine months of the marketing year.
Weekly net export sales of upland totaled 392,200 bales this week. Pima sales were at a marketing year high of 23,900 bales. China was the biggest buyer of upland, taking 272,900 bales, followed by Turkey at 76,900 bales, and Vietnam at 15,400 bales.
It should be noted that China also purchased 50,000 bales for the 2022-23 marketing year. This set the stage for additional buying for the current 2021-22 marketing year. It also keeps the door open to the suggestion by many international analysts that the Chinese crop is some 500,000 bales overestimated.
The on-call sales versus on-call purchasing ratio continues to build an even more bullish scenario for cotton prices. While the scenario for December has fallen to 3:1 (only neutral to slightly bullish in that single view), the ratio for March futures has increased to 5:1 with May at nearly 9:1 and July at 8:1. This will likely keep the remaining old crop futures prices in a bullish mode.
More importantly, it offers support to the new crop December contract in spite the fact that 2022 world sowings to cotton will see a dramatic upshift. In that reference, growers are encouraged to take advantage and become as much as 60% priced on their 2022 crop, basis December 2022 futures at 90 cents and above.
Some have voiced concern of the decline in open interest in the December contract over the past four weeks. Such is typical of any contract as its approaches the delivery period. Open interest in the December contract will continue to decline as it moves closer to the delivery period. The market continues at a historically high level and obviously many are second guessing it lower. Such is natural.
However, the technicals have kept the door open for new highs, and technicals should never be disregarded.
The November supply demand report will suggest the upcoming direction in the market. However, all old crop contract months – December through July – are well supported between 95 cents in the July and 104 cents in the December. It’s just a week from November, and 2021 peak ginning will not occur until December – late by any standard.
Give a gift of cotton today.
Dr. O.A. Cleveland is professor emeritus, Agricultural Economics at Mississippi State University.
Πηγή: Cotton Grower