Other than price not much has changed in the US cotton market this week.  Weather forecasters continue to promise rains across still parched areas of West Texas, but it refuses to come in a general pattern.  Especially hot conditions across California and Arizona are reportedly causing fruit retention issues while damp and cloudy conditions across the Mississippi River Delta and portions of the Southeastern US are causing similar issues and concerns.  Additionally, some areas within the latter region remain too dry.

On the demand side, export sales for the week ending Aug 11 were strong and conveyed value sentiment for US cotton near and above the 73.00 mark.

Despite late but beneficial rainfall across Gujarat, the overall condition in India did not change a great deal over the course of the week.  However, the Brazilian producer’s organization (Abrapa) released a report estimating 2015/16 production significantly off the USDAΆs latest estimate of around 6.1M bales.  The organization also estimated exports strikingly under the USDA estimate.  But such reports are far more analogous to a caution flag for the market, rather than serving as a market-mover.

Much has been made of strong off-take from ChinaΆs reserve this year and it has led to much speculation regarding imports into China in the future, whether out of outright need or as a maneuver to enhance the aggregate quality of their reserve stocks.  Official statements earlier this year from China regarding new reserve purchases from the 2016 crop suggest the latter.

That said, China may be looking to areas other than the US to fill their longer-term needs. China has already lent aid to at least one major cotton producing nation within the African Franc zone with the aim of enhancing both yield and quality of the crop.  WeΆre guessing this is not purely a philanthropic move.  Recently, a pledge of $10B to Sudan by a group private textile entities from China over a five-year period was made known to the public.  The money is reportedly to be spent on infrastructure in what seems to largely amount to increasing the nationΆs irrigation capacity across its major cotton producing region, but commitments by the entities involved have also confirmed plans to construct new textile manufacturing facilities up to and including final garment assembly.

The rally and subsequent selloff in the past two weeks has been a good news/bad news scenario for producers. Many producers took advantage of the rally to price cotton substantially above previous levels, and it was encouraging to see the contracting basis hold throughout the period. On the other hand, weΆre told many producers are continuing to look for an 8 in front of the Dec price, and the selloff makes that unlikely in the near term, absent a substantial weather event.

Of course, weather events do happen, and as we move into September, the presence of open bolls in most of the major growing areas will increase the likelihood that any weather event will have a substantial impact on harvested yield.

Producers who have priced or hedged a substantial portion of their crop have the option of taking a wait and see approach for the remainder of the season. There will be demand for higher quality cotton, and the basis for premium cotton should be attractive at harvest.

On the other hand, producers who still havenΆt priced or hedged at least half their estimated production need to have orders with their local buyer or with their broker to take advantage of any move back to the mid-70s. This late in the season, March or May puts will offer the most flexible pricing opportunity, putting a floor under prices, but leaving the opportunity to cash in on spot quality premiums.

For next week, the standard weekly technical analysis for and money flow into the Dec contract is bullish.  Export sales for the week ending Aug 18 could once again prove quite strong.  At this time, it seems that fresh mill purchases and fixations are lending support to ICE cotton futures.