After a strong start for the week, the ICE Dec contract encountered weakness following the dissemination of strong US export sales data, ultimately giving up 150 points on the week, settling at 69.07. The settlement was, however, near the lower end of the trading range with the market trading more than 300 points off ThursdayΆs intraweek high at 71.79. The Dec – Mar spread remains at far less than full carry.

Markets are often fickle. This is especially true of the specs, who have no offsetting cash position in our market. Still, the specs should be viewed as the producerΆs friend, as they most often carry a net long futures position while the merchants and commercials are significantly net short the futures.

But with all of last weekΆs bullishness and a run-up of over 500 points Vs last weekΆs pre-WASDE intraweek low, those who hit the “buy” button repeatedly post the reportΆs release likely wanted to book some profits this week, especially given the impending commencement of scheduled index fund rolling periods.

Harvest pressure must figure into the equation for this weekΆs price action, too. Although we think US production is going to be realized modestly lower than the USDAΆs latest projection, harvest weather across most of The Belt is beautiful, following a period of record highs in many areas that has to be viewed as fortuitous.

But, and we must say it, US export sales of late (and really for the whole of this marketing year and the last of the former one) have been nothing short of stellar. The US is now in excess of 52% committed against the USDAΆs revised 12.5M bales export target.
Producers are still seeing a strong basis for recaps as merchants work to secure inventory for nearby shipping needs and fill the pipeline. While the market ended the week 2 cents off its recent highs, we think it is worth considering recap sales while the basis is strong.

That said, weΆre lukewarm to selling on-call. While this is the easiest way to capture the current basis and still participate in market gains, we believe on call sales should always be backed up with put options to protect against an unexpected selloff. Selling cotton on-call also requires a strategy and discipline.

For producers with discounted qualities, we advise patience. The spot market is somewhat more fragmented than in the past few years, and there are more small/medium merchants actively seeking specific characteristics. A good buyer will help you negotiate these waters and find a buyer who both needs your specific cotton and is financially/ethically equipped to make the trade advisable.

For next week, the standard weekly technical analysis for the Dec contract has turned somewhat bearish, but money flow remains supportive. US net export sales for the week ending Oct 20 will likely be off Vs figures put forth in this weekΆs report, but they could again be quite strong. Many of the “whoΆs who” of our industry were in Liverpool this week for the annual International Cotton Association meeting; perhaps some business was accomplished there over evening cocktails.

WeΆll see.

The Rogers Index Fund roll commences next Friday, which will likely bring selling pressure to Dec.

Fall temperatures have finally arrived across the Mississippi River Delta and harvest here is surely soon to wrap up, and as I finish this writing my wife is calling to me to hurry up so that we can get on the road en route to a friendΆs wedding this weekend. Fortunately, the ceremony is being held near Hot Springs, AR, which is a simply wonderful place to be on a beautiful autumn weekend, even if the ponies arenΆt running.