The ICE Dec and Mar contracts gave back 160 and 87 points on the week, respectively, as last week’s inversion between the two contracts gave way to partial carry.

Well, nobody expected ICE cotton futures to move much higher into the stratosphere this week, post last weekΆs near 850 point gain. Price movements like we saw last week often occur after a long-term consolidation period, which had been the case with ICE futures. Last weekΆs CFTC commitments of traders report showed a significant number of large specs entering the market on last weekΆs breakout move.

But, once the technical breakout has occurred, the physical and fundamental aspects often come into play in a larger manner. Increased futures prices and (often) strengthening basis to producers incite cash commitments and offsetting hedges. Physical sales to mills often slow in conjunction with breakout moves to the upside, post some initial potential for chasing the market higher.

But slowing of US export sales did not occur, basis the Dec contract. The market had generally expected sluggish sales data, but the sales were pleasantly surprising and at net total of near 260K running bales across both the 2015/16 and 2016/17 marketing years. And such lends credence to the notion that demand for raw cotton, which has been despondent for so long, may truly be turning a corner.

Further, the worldΆs major production centers are experiencing issues with this seasonΆs crop. Recent heavy rains across portions of China have reportedly adversely affected around 25% percent of this yearΆs crop while a delayed monsoon has curbed sowing in India and Pakistan. Too, although the monsoon has now covered all cotton producing areas of India, state meteorologists are predicting an early end to precipitation in Aug with the expected onset of La Nina conditions. Hot and dry weather conditions are also a concern across the major exporting regions of the Former Soviet Union and the African Franc Zone.

The net effect of these issues, coupled with uncertainty regarding the upcoming sowing and development of the new crop across the southern hemisphere seems to be increased demand for US bales and quality.

Here at home, hot and dry conditions across The Belt (especially W TX) are threatening to shorten the effective flowering period. The peak fruiting period is the least optimum time for weather stress to occur, as all producers are well aware.

While the prospect of shorter US production than was originally expected is not a boon for our producers, the overall fundamental structure of our market seems to be improving.

We have seen and heard of increased forward contracting activity in the country, and we think this is a good thing. While a combination of Asian demand for high quality cotton and potential decreases in production in China, TX, and India bodes well for both long term prices and basis, itΆs hard to pass up the opportunity to price cotton at current levels.

That said, we believe there is still a strong argument to be made for going into the fall with cotton available for spot sales. A producer with 50% booked, 30% protected with puts, and 20% on his hip looks like a smart trader at this point in the season.

For next week, the standard weekly technical analysis for and money flow into the Dec contract remain bullish, but the market also remains in overbought territory. If export sales for the week ending July 21 are again strong, such will likely be fuel for the current bull move. Strong support for Dec should be encountered near 67.00 – 68.00, should the 70.00 – 71.00 level give way; strong resistance will likely be encountered near 78.00

Have a great weekend!