ICE Dec futures picked up 56 points this week per a 100 point daily gain on Fri, settling at 63.32. Further, Dec futures posted a 288 point gain in Oct, despite seasonal pressures, while trading a relatively tame 479 point range.
The majority of US cotton producers will likely have to deal with some amount of rain over the weekend and into the coming week. Growers in TX, OK and KS began receiving showers last evening. But, that is not unusual as Nov approaches, and stretches of fine harvest weather will likely become shorter across most of the US as the rest of this season progresses. Hence, concerns about the overall quality of this yearΆs crop are not likely to abate in the near future, especially with notable quality concerns across China, India, Pakistan and the f ormer Soviet Union.
The demand side of the equation is at least as dismal as this seasonΆs harvest weather. The US continues to come up short week after week on new net sales with less than 80K total running bales logged for the week ending Oct 22. Nearly all that I hear and read from China conveys a bearish sentiment pervading not only the raw cotton market, but the entire value-added cotton chain.
The USDAΆs Nov WASDE report is not slated for release until Tue, Nov 10 and thus will draw little attention away from the debut of the ICE world cotton contract on Mon, Nov 2. My personal thoughts are that liquidity (speculation) may be somewhat difficult to come by in the contractΆs early days. Nevertheless, we will cover the contract in our daily and weekly reports.
I very much wanted to have something positive to say aside from this weekΆs modest gain and other than listing the reasons why I think that the ICE Dec 16 contract will ultimately prove more profitable for producers than did Dec 15. Since doing so in reference to the cotton market seems a bit daunting this week, IΆll write a little on some college football teams that find their homes within The Cotton Belt.
Two institutions of higher learning into which I was fortunate enough to have been admitted (and probably even more fortunate to have graduated from) are having stellar football seasons. Oklahoma State University (OSU) and the University of Memphis (UM) are each undefeated through the first seven contests of this season and are currently ranked 12th and 16th respectively by the AP poll. OSU will have its mettle tested over the remainder of the season with games against teams currently ranked 2nd, 5th and 14th while speculation continues to increase regarding potential illustrious post-season play for UM, especially if they can manage an undefeated season. UMΆs winning streak, going back to last season, is now at 14.
Another university that I am equally proud to have attended, Arkansas State University, has dropped three games this season, but with no shame to the Universities of Southern California, Missouri and Toledo (currently ranked 20th). While I have never attended a single class at the University of Arkansas, I am partial to the Razorbacks as I hail from The Natural State. And finding something positive to say on this note is very much like trying to do so in reference to the cotton market.
There is one bright note amongst the gloom. Spot basis for high quality cotton remains historically strong, with prices as high as 565 over Dec being paid in the South Delta and 200-400 over Dec being paid across a broader swath of the cotton belt. Given the low likelihood of a rally much over a few cents in the Dec contract, it seems to me that producers being offered +300 or better have every incentive to sell against a Dec of 6300 or better. While some producers will insist on going to the loan and holding, the 2-3 cents they could potentially gain in the market could easily be moot if the basis were to widen to the more historically typical 200-400 off Dec.
For next week the standard week technical analysis for and money flow into the Dec contract remain bearish, but somewhat less so than in recent weeks. Export sales for the week ending Oct 29 will likely show some improvement vs the period ending Oct 22, although upward movement will have a headwind of index fund rolling to contend with.
Looking further out, Nov is the month when seasonal US pressures normally continue against futures contract, although prices tend to trend higher as Nov comes to a close. US export sales and shipments tend to move higher; harvest operations in the EU and China tend to wind down while central and southern Indian harvesting accelerates. Final Aussie planting usually draws to a close while planting across South America intensifies. Market volatility in Nov is usually greater than average.
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
