The cotton market has that mid-August feeling that little, if anything, is occurring. That is, the market is in the doldrums. Certainly the feeling is there, and I am near guilty of believing such.
However, inquiries for export business occur every night, and traders continue to ask about planting progress each and every day. The entire production year is in front of us. Yet, we stay busy tracking mill openings and consumer demand for anything, much less apparel and textile goods. The lack of consumer demand and the business shutdown/slowdown around the world continues to control the daily news.
The market appears to have but very few buyers. However, sellers are not in the forefront either. It is a market that appears to be afraid to go down but is not willing to go up. Maybe we can say that, given the consumer fears and the business slowdown, the market is in equilibrium. However, an equilibrium price should be near 70 cents.
It is certainly too early in the planting season for prices to go down. World plantings are declining, and weather scares are in front of us. Yes, cotton supplies are more than ample. However, a quick return to normal spinning activity could bring supplies back in line.
I am not predicting that mill capacity will overnight return to normal. But over the course of four months, mill activity could return to near normal. No, I do not expect that. But with world plantings on the decline, the supply demand imbalance can be corrected in midseason. The market appears to be very content trading near the 55 to 59 cent level.
It is simply just a bridge too far to expect December futures to climb above 60 cents in the midst of the planting season. Mother Nature can still bring us a perfect season for cotton – or she can, as some are predicting, bring the U.S. Cotton Belt a very stormy season with abnormally high numbers of hurricanes and unusual weather patterns across the globe. Thus, the 55.50 to 59.50 cent trading range appears in order.
China surfaces every day – in the medical front due to its spread of the coronavirus, in discussions of world trade and in cotton relations with the world. Too, it is expected that both the U.S. and Brazil will continue to sell cotton to China. China was a big buyer again this week and likely will be in the next two reports if reliable news materializes. China needs more cotton for its strategic reserve and will be in the market for more Brazilian and U.S. cotton. Its strategic reserve is just too low and is dreadfully low should China suffer a production setback.
The weekly export report shows that U.S. net weekly sales for the week ending April 30 were 428,600 bales. Net sales included 370,300 of upland, 2,400 bales of Pima and 55,900 bales of upland for the 2020-21 season.
Chinese buying has stabilized the market. Additionally, cotton has tended to respond to either ICE or Chinese market technical patterns. The market has responded to a series of ill-defined head and shoulders formations, as well as bottom indicators. A potentially bearish head and shoulders is working the ICE chats now, but again it is very ill defined.
We continue, in the intermediate term, to expect the market to hold in the 55.50 to 59.50 cent range.
Give a gift of cotton today.
Dr. O.A. Cleveland is professor emeritus, Agricultural Economics at Mississippi State University.
Πηγή: Cotton Grower