ICE May cotton futures started the week with a bang, but ended with a fizzle. Still, May was a 56 point winner on the week while Dec futures picked up 45 on the week.
US export sales for the week ending Mar 17 were particularly disappointing at just above 90K total running bales. Shipments also continue to lag the pace required to meet the USDA’s 9.5M bale export target.
China continues to leak information regarding its impending release of reserve stocks ahead of the USDAΆs annual planting intentions report. A spokesperson for the CNCRC has reiterated that reserve sales will commence by mid- to late April. He also stated that better qualities from the reserve, including imported stocks, will be given priority status for release. Obviously, the prospect of such is far from bullish. However, he also countered with a suggestion that China would repurchase high quality stocks for its reserve in order to raise the overall quality of its stockpile.
The latter seems unlikely, at least to us.
So far this year, the National Cotton Council, USDA and Informa Economics have predicted 2016 US cotton acreage at 9.3M, 9.4M and 9.5M acres, respectively. We will not be surprised if the USDAΆs initial survey results come in closer to 9M acres.
Whatever the results put forth on Mar 31 are, bear in mind that Nov soybeans have moved significantly higher while Dec cotton has gone virtually nowhere.
We did hear of several cotton producers booking soybean sales recently, and this is likely a harbinger of falling acreage.
While this weekΆs trading spurred some coffee shop talk among producers, our broker friends tell us there are still very few bales or acres being committed. The lack of enthusiasm among spot traders is understandable, and it is difficult to work up much enthusiasm for a marketing recommendation this week.
We continue to believe that we will see at least modest weather rallies in April and May, and that these will present our best pricing opportunities in the short to medium term. Producers would do well to consider booking one quarter to one third of their crop on rallies into the low/mid 60s.
For next week, the standard weekly technical analysis for and money flow into the May contract remain bearish. Although we still think that clarification around the impending release of ChinaΆs reserve stocks is needed for the market to elucidate direction, US 2016 planted area near 9M acres would likely be quite supportive. Planting intentions of 9.5M+ will like spur further selling.
Have a great holiday!
Louis W Rose IV, PhD has worked with cotton as a producer, consultant, analyst and trader. Rose holds degrees in Education, Agriculture, Plant Science and Business (MBA) from AR St Univ, OK St Univ and the Univ of Memphis, respectively. He has held positions with Aon Reinsurance and Cargill Cotton. Rose currently provides analytic services for various clients and media outlets and is the co-founder of Risk Analytics, LLC, producers of The Rose Report, which he authors. For more info on The Rose Report or analytic services, please visit: www.rosecottonreport.com
