As of this writing (Feb. 14), old crop ICE cotton futures maintain their incredible uptrend, now aimed at 90 cents. A mix of bullish factors include: 1) tightening ending stocks per USDA’s February WASDE report; 2) the possibility of more trimming of USDA’s 2020 production forecast; 3) continuing strength in export demand as reflected by very high export commitments and decent current weekly sales; 4) continued long positioning by hedge and index funds; and 5) the eventual need for commercial hedgers to buy back short futures positions with potentially few available/willing to sell to them.
I can’t see much of anything that would make prices retreat. Neither can any other cotton market analyst that I’m following. So, we’re all on the same side of the boat, which should alarm everybody. So what should you do? Well, it seems obvious, but if you have old crop bales to sell, you might consider selling them. Just because the echo chamber is 100% bullish doesn’t mean some new information or some unforeseen black swan event won’t come along and trigger a correction.
Doing nothing all season is also a strategy. It avoids up-front option premiums and possible futures margin calls. But the cost of this strategy is bearing the risk of lower prices all season. In that sense doing nothing is the ultimate form of speculation.
We can make educated guesses about where prices are headed. But it is always ultimately an uncertain outlook. The only thing you know with certainty is what the market is telling you today. If today’s prices pencil out to a profitable cash position, consider the several choices you have for fixing the downside and benefiting from continued upside.
For additional thoughts on these and other cotton marketing topics, please visit my weekly on-line newsletter at http://agrilife.org/cottonmarketing/.
