Back to that word again…patience.
This market is all but unbelievable. Patience, patience, patience. There are a few other words at work: China, Pakistan, Bangladesh, and to a lesser degree USDA-FAS. Finally, mix those with weak demand and the result is nervousness, as in mills and traders are “scared to death.”
As is typical, speculators sense this and they too have helped push prices lower, just as they will soon help push prices higher. Couple these words with the rotten words of inflation and recession, along with the widespread nervousness in the equity market as mortgage rates zoom higher, and the weakness in demand continues to plague the cotton market.
Markets always overdo. They go too low. They go too high. They always return to an equilibrium. So will cotton. The market is a tough task manager. It gives the test first, the lesson afterward. This week, in fact most of 2022, has been a test.
Patience. Cotton fundamentals, despite weak demand, are strong enough to hold prices above the dollar mark and to push the market back to the 110-120 cent range. Most likely that will be the equilibrium range for the remainder of the December contract.
First, the Chinese cotton market came under pressure and worked to push New York lower. Remember, China is the world’s largest producer and consumer of cotton. The Chinese market matters. The rumor of Chinese cancellations surfaced.
USDA’s cotton export data collecting methodology totally failed, leaving traders in the dark as to prospective Chinese export cancellations and or sales. Sales are thought to be very large to both Pakistan and Bangladesh, especially Pakistan, but USDA reports are absent on that front. This added to the nervousness exhibited by mills with respect to yarn inventory and their respective ability to keep yarn moving.
Too, retailers have reduced orders as they attempt to manage excessive inventory. Consumers have slowed their purchases of apparel goods despite heavy discounting by retailers. Mills have backed further away from the cash cotton market and are on the sidelines, preferring to do nothing. They prefer to accept the risk of higher cotton prices than to buy cotton they might not need.
Thus, speculators were able to probe mill attitudes and found a market without anyone willing to buy cotton. But no, I did not expect two limit down days. No, I did not expect to lose 15 cents this week – no more than a dime at the very most.
Patience. Yet, we know a very large volume of 41-4-34 green card class has been sold in the export market. Thus, at some point, the market will have to come looking for cotton…at the time when the availability is essentially at a modern time historical low. Despite the near 15-cent drop in prices this week – and even during the 10-cent run up last week – the December-March futures spread held essentially at 300 points, implying that the demand for grower cotton, basis December futures, will be very strong no later than early November at the very latest.
Too, the market will have to rally to pry that cotton from grower hands. I expect the market to begin another rally during the coming week and extend at least to the USDA Sept. 12 world supply demand report.
Possibly by late next week, USDA will have its export reporting service working again (don’t fix something that is not broken), and the market can see that there is some demand on the horizon. Simple as it sounds, that will calm some nerves. Too, the September supply demand report will provide needed guidance with respect to the world crop and potential reductions to the Brazilian, Chinese, and Pakistani crops.
Patience. Market fundamentals should prove beneficial to cotton.
Cotton has a celebration coming this week. Stoneville Pedigreed Seed is 100 years old. The original seed was developed next to the world’s best known cotton research experiment station, The Stoneville Experiment Station.
Give a gift of cotton today.
Dr. O.A. Cleveland is professor emeritus, Agricultural Economics at Mississippi State University.
Πηγή: Cotton Grower