The ICE cotton contracts took it on the chin this week, with Dec giving up 199 points on the week. Harvest pressure continues to weaken the Dec – Mar spread somewhat, but it remains at far less than full carry. The ICE Dec contract did manage a 250 point advancement for the month of Sept.
Despite the poor showing of the cotton market this week, the Dec contact showed signs of life in volatile trading action on Fri, ultimately picking up 35points on the day. We expect the increase in volatility was due, in large part, to specs evening up at month’s end, which is also the end of the 3rd quarter.
As expected, US export sales continued to cool for the week ending Sept 22, with the US managing only approximately 113K running bales of net sales. The figure was a low for the young marketing year and also the only sales period during the current marketing year that fairly to meet the weekly pace required to match the USDAΆs 11.5M bales projection. Looking forward, sales could continue to slow as the US and northern hemisphere pipelines begin to fill.
It is just a fact of life that buyers become less ancy as their choices increase. Still, despite the recent cooling period, market dips are likely to be met with mill on-call fixations from their aggregate heavy commitments against the Dec contract.
Domestically, as is normally the case, harvest weather has improved as Oct approached. Of course, tropical occurrences can certainly still crop up, but it does seem that some of the weather premium within our market has/is evaporating.
Internationally, it seems that egos are trumping fundamental – within the news arena, at least.
Despite statements made by the CNCRC last spring regarding ChinaΆs expected purchases of high quality new crop cotton (supposedly in an effort to average higher the overall quality of their reserve stocks), China has now officially said that such purchases during 2016/17 are “unlikely”.
This change of plans was announced this week and on the heels of the lodging of official complaints with the WTO by the US against China regarding alleged dumping activity of both corn and soybean stocks. However, this bit of bearish news was somewhat mitigated by the CNCRCΆs announcement that the 2018 reserve auction season will likely commence around two months earlier Vs this year, with an expected initiation date sometime in early March.
WeΆll see.
In another clash of international government personalities, India is expected to cease cotton exports to Pakistan. Some within the government are reportedly irked that Pakistan, to which Pakistan has granted “Most Favored Nation” trading status, has not reciprocated. Of course, this news seems more supportive than not for US cotton.
For next week, the standard technical analysis for and money flow into the Dec contract are supportive, but the market will likely need to negotiate a likely strong US harvest (and increasing harvest pressure) and heavy mill commitments against the Dec contract.
