The bears failed to make it four in a row with the Dec contract gaining 87 points on the week, which is misleading given that Dec traded up to 70.00 on Friday – 272 points on last weekΆs settlement. Mar gained 87 points as well, leaving the Dec – Mar inversion unchanged, although it settled above 60 on Wed and Thu.
We said that Dec would move higher this week – our models confirmed it and it happened. Still, we were scratching our heads when we first looked at the output of our statistical and predictive work last week. Fundamentally, without a hurricane threat, support looked to be about all that could be hoped for.
That support should come at the hands of robust demand. The latest export sales figures were encouraging, especially when considering the building commitments against the 2018/19 marketing year, which is more than 11 months from commencing.
On the production side, we were able to view and take pictures for our website crop gallery from our sojourn to Cerulean, Kentucky, to enjoy the Great American Eclipse (and it was quite a show). For what itΆs worth, Cerulean was the spot on moment of “greatest eclipse”, according to NASA, although there was likely no discernible difference between where we were and Hopkinsville, Kentucky (“Eclipseville”). We just thought it would be cool to be at the spot closest to the moon during the happening. And cool it was.
From our travels we can say that, overall, cotton in Tennessee looks strong and not as late in moving toward maturation as we once thought it would be. Open bolls can even be seen across some earlier sown fields. Outside of cotton still on the stalk across southern Texas we continue to hear positive things about this yearΆs crop and production potential.
Crop watchers and traders alike have their eyes focused on Hurricane Harvey which has a target on the Corpus Christi area of the Texas coast. The storm is expected to produce high winds and catastrophic rainfall accumulations along portions of the Texas Gulf Coast and other portions of southeastern Texas.
To date, there have been 459K bales of South Texas cotton classed and we estimate another 700K to be off the stalk. Our analysis puts the number of southern Texas bales at risk to be around 500K, with most of that production further inland within the Southern Blackland Prairie and Brazos River Bottom regions. Growers in these regions have just begun defoliation and harvesting, so any rainfall – especially the currently forecasted accumulations – would cause both yield loss and damage to quality.
A looming question is “what will Harvey do next?” Will it move back out into the gulf and make another landfall, stall out over southeastern Texas, slowly move across the Mid- South and Southeast, or move northwest to the large cotton acreage across the plains of Texas? Regardless, we hope and pray for safety for those in its path and wish for minimal crop damage to producers who are deeply invested – in both sweat and money – in this yearΆs crop.
While we have heard less recently regarding US – North Korea tensions, we are now compelled to watch tensions between China and India. The nations continue to have a standoff in a border dispute and tensions between the two nations could ultimately spell increased export business for the US from China. Still, potential hostility involving the worldΆs largest consumer and producer of cotton seems more bearish than bullish.
Producers who heeded last weekΆs advice to sell weather rallies over 6800 got their chance this week as we got a textbook perfect example of a “buy the rumor, sell the fact” market. Producers who grew “Harvey horns” and got bullish can take comfort in the demonstration that the market still has some life in it, and a short-term return to the low 70s is possible, albeit only with the possibility of major weather and/or economic issues.
Producers who havenΆt priced cotton should continue to fix or hedge on any rally over 6800. Producers who are 50-75% sold can afford to roll the dice on another rally over 7000 and/or a stronger basis for early harvest recaps.
For next week, the standard weekly technical analysis for and money flow into the Dec contract remain bearish, with the market no longer in a technically oversold condition.
Have a great weekend!
