The Mar contract gained 181 points on strong US export business and ahead of the index fund rolling periods, settling at 74.85. OI contracted significantly in Mar over the past week while the nearby spread showed signs of weakening, both of which suggest that specs were rolling their longs forward.

There is no doubt that demand for US bales for export is stellar, well exceeding our expectations. Total net export sales for the week ending Jan 19 were nearly 465K running bales, with sales again distributed across the board. Still, the continued failure of shipments to meet the pace required to meet the USDAΆs 12.5M bale export target seems to forbid the lead month from exploding.

The large US harvest of high quality cotton seems to have enticed mills to stock up, with merchants likely attempting to push bales out the door for lack of carry in the market. The slow but steady increase in ICE certificated stocks supports the latter.

Unfortunately for producers still holding 2016 crop, US merchants are well stocked, and the incentive to add inventory in the spot market is limited. Our broker friends tell us that while there is a modest volume trading against a March of 74+, merchants have gotten very particular about qualities. Further, as storage continues to accrue, equity prices arenΆt as encouraging as producers would like to see for their loan cotton.

WeΆd point out that we have long been advocates of selling spot cotton and using the option market to take advantage of spring and summer rallies, but that would sound too much like an “I told you so.”
Looking to new crop, we continue to see lukewarm interest on the part of both merchants and producers, and the December contract seems stalled in lukewarm territory. For now, we donΆt see any incentive to get in a hurry to tie up new crop, but we do think itΆs worth laying in a few put options if December moves close to 75 cents.

For next week, the standard weekly technical analysis for and money flow into the Mar contract remain supportive, but the market is also once again moving into overbought territory. The rolling of longs forward by index funds will commence on Mon, Jan 30 with the Rogers roll, and this will provide some selling pressure against Mar. Outside of ThuΆs export report, the next major releases from the USDA will be the Feb WASDE report and early projections of 2017 US and world balance sheets at the annual Ag Outlook Forum. Saturday is the Chinese New Year, and it may be worth paying attention to any new business strategies that could emerge in the next week.

We are one week into the Trump administration and, contrary to some predictions, the sky has not fallen. Now, we realize that you do not read this column in order to tap into my political expertise, but perhaps if effort, focus and staying on-task are indicators of performance, things may not work out badly at all. While many US farmers continue to fret (with substantial reason) the US withdrawal from and re-negotiation of major trade deals, it seems likely (at least to us) that Rural America and its backbone (production agriculture) will find its way and prosper over the next 4 – 8 years.

Have a great weekend!