It was quite a week for the bulls – not only in cotton, but in the grains, as well. ICE July futures surged, gaining 261 points on the week and has traded in excess of 1000 points on this year’s continuation low just below 54.50. The contract had quite a week, as well, logging a 252 point weekly gain.
At this time last week, both our statistical models and our intuition prompted us to call for higher prices on the ICE this week. However, they moved a bit further northward that what we expected.
With insurance deadlines nearing across West Texas, and with the state well behind its average planting pace the market just “felt” higher. The grains did their part, especially CME corn, in supporting our market. US export sales for the week ending May 19th were respectable for both old and new crop delivery, and shipments remained strong. However, the most bullish factor this week was likely an excess of 2M bales (on May 20th) of unfixed on-call sales to mills. We expected this to be supportive, but not quite as bullish as it seems to have been.
Further, it seems plausible that the increase in new crop US export sales may have been somewhat tied to decisions by some West African nations to forego the sowing of GMOs this season.
There is also talk in some circles that increases in oil prices may translate to lessened competition from polyester, and potentially more competition for acres in the Southern Hemisphere. This will bear watching over the next few months.
It is index fund rolling season again, which ordinarily brings increased selling pressure to the front month. Over the next couple of weeks open interest will contract in the July contract and expand in the Dec and then we will be primed for nearly a half year of analysis and trading against Dec delivery – by far our favorite contract.
Across the cotton producing geographies of the world there seems to be little in the way of weather concerns, at this time. It is a bit hot and dry across portions of the Former Soviet Union and somewhat dry across West Africa, but there really seems to be little major concern. And, post a hopefully restful holiday weekend, the market will turn its attention to the June WASDE report and the June 30th USDA annual acreage report.
For next week, the standard weekly technical analysis for and money flow into the July contract remain bullish, but the market is now in overbought territory. Export sales for the week ending May 26th are likely to slow Vs data put forth this week, but shipments could remain strong. Next weekΆs on-call report will be closely watched by traders as they try to discern just how much cotton the mills have left to fix. The old crop – new crop spread remains inverted, which would suggests that obtaining some protection on any significant Dec rallies is likely prudent.
Have a great holiday!
