The ICE Mar contract picked up 78 points on the final week of 2016, settling at 70.65. Mar gave back 93 points for the month of Dec, but the ICE cotton market, on a rolling front month basis, picked up 737 points in 2016 – nearly 10%. Not bad.
Post nearly 10 days of lackluster trading, the market found its legs just ahead of and post the final US cotton export report of 2016. And US export sales remained strong for the week ending Dc 22 at nearly 350K running bales, net.
The US has now sold nearly 2M net running bales over the 7 most recent sales periods. Too, shipments continue to improve, with the market final exceeding the weekly pace required to meet the USDAΆs 12.2M bale export projection.
Regarding domestic supply, it seems that the USDAΆs most recent estimate of around 16.5M bales will not be far off the final tally. The pace of classing has now begun to slow on a weekly basis while the overall quality of the 2016 crop remains outstanding with greater than 70% of stocks classed thus far deliverable against ICE contracts.
Last weekΆs market action seemed to fall in line with what bearish market participants (including us) have come to expect – rallies seem to be viewed as an opportunity for further producer off-loading of bales and also for specs to take profit on long positions.
Producers finished 2016 with an offered spot basis on a par with the past two year end periods – historically strong, but, somewhat weaker than they were seeing before Thanksgiving. Using the past two seasons as a guide, we expect to continue to see a strong basis into February, but merchants can afford to be much choosier about what they pay for which qualities.
This doesnΆt necessarily translate into strong premiums for higher grades. The US crop has produced a surplus of middling this year, and many merchants need strict lows and discounted qualities to fill out mill orders running above spec. What this does mean to a producer is that the next few months are an excellent time to work with a broker who supplies multiple merchants who need a broader variety of qualities than any single merchant.
In many coffee shops, talk is also starting to turn to 2017 crop. There is certainly more than enough news to form an opinion on what shape the 2017 crop will take. Unfortunately, there is nowhere near enough concrete information to form a consensus on what direction it will take.
One thing that is clear: many producers sold far too early this past season and missed a better opportunities later in the season. Wise use of the option pit would have helped cut their losses in this scenario. If you donΆt already have an account and a relationship with a futures broker, thereΆs no time like the present!
For next week, the standard weekly technical analysis for and money flow into the Mar contract remain supportive. US net export sales for the week ending Dec 29 will likely again eclipse the weekly pace required to realize the USDAΆs export target. Looking a bit further out, the market will need to anticipate results to be put forth in the USDAΆs Jan WASDE report, scheduled for release on Jan 12. Finally, index fund rebalancing maneuvers this year will likely feature a smaller inclusion of cotton futures Vs 2016.
We want to wish all of our readerΆs best wishes for a prosperous New Year!
