It was not a pleasant post-holiday week for bulls. Cotton slid another 394 points this week for a cumulative total of 1582 points over the last 10 weeks.
Cotton has been a loser 9 of the last 10 weeks, with its only W/W gain coming the week ending June 6 for a mere 53 points.
Grains fared no better. Nov soybeans gave up 58 ½ cents, Dec corn lost 38 ½ cents and Sept wheat was set back 56 cents.
And this will likely continue, over the near-term, at least.
US new crop export sales were significantly higher W/W at just above 200K RBs. Old crop net sales were not shabby at over 60K RBs, which brings total commitments for the current MY to nearly 11.1M bales (we said this would happen). The pace of shipments continues to suggest that final exports for 2013/14 will be very 10.75M bales, although the USDA stood pat on todayΆs WASDE report old crop balance sheet.
The WASDE release was out-and-out bearish. Per adjustments to the current MY, the estimate of 2014/15 world aggregate beginning stocks was elevated nearly 1.6M bales, 2014 world aggregate production was projected 500K bales higher and the world aggregate consumption projection was debited nearly 1M bales. The net effect was a projection of 2014/15 world ending stocks at a record 105.68M bales (S/U ratio 94.92%).
In retrospect, the consumption debit should have been an easy call. We have watched as spot prices across the globe have trended significantly lower over recent weeks. Even in Pakistan and India, where crop moisture has not been abundant thus far this season, buyers have stepped to the sidelines to watch the benchmark ICE contract crash and burn. Further, world ending stocks outside of China were projected nearly 1.5M bales higher at 43.42M bales (S/U ratio 58%), which is very bearish.
US ending stocks, which we called on the money, were projected 900K bales higher at 5.2M bales (although the USDA took a different path in elucidating their projection than did we). US production was projected 1.5M bales higher at 16.5M bales and the US domestic consumption projection was raised 100K bales to 3.8M.
Further, the USDA increased it projection of US exports for 2014/15 500K bales to 10.2M, but in actuality they did nothing more than roll their estimate of 2013/14 commitments not shipped by July 31 (minus, probably 200K bales or so) to 2013/14.
There were only two hints at any type of positive note in todayΆs WASDE balance sheet:
US exports are likely to increase. Sales credited against 2014/15 are at 31.5% of the USDA projection and sales need only average 124K RBs per week through the end of July, 2015 in order to hit the USDAΆs target.
Should monsoon activity be short over India this season, the USDA left itself a tremendous amount of room to trim its production projection for that part of the world.
For the week ending July 8, the aggregate speculative community again reduced its net long position to 3.3K and 10.6K contracts for their futures only and futures and options combined positions. But donΆt kid yourself, by the market close Thursday, July 10 the aggregate speculative community was likely all but net flat, if not net short.
It may very well be an interesting late summer and autumn in that current prices will no doubt kick up fresh demand for US bales, which are few and far between. The pipeline is tight and is likely to grow progressively more so until near December.
Just one other bleak note – Some flexibility analyses that we employ suggest that, given the increase in US and world aggregate projected carryout put forth today vs that put forth on June S&D report, Dec cotton will trade at the 60.00 level. Several other analyses and factors support this notion.
For next week, our proprietary analyses suggest that similar market structures have better than a 3 in 5 chance of closing lower, amid increasing volatility, for the subsequent week.
We expect Dec to trade a range of 66.00 – 69.00 on the inside or 64.50 – 70.00 on the outside. Rallies over the near-term are likely to be short-lived; breaks could be severe.
The Rose Report weekly edition is published and made available free of charge as a courtesy to producers, ginners, merchants, agents and all others who have an interest in the cotton market. To obtain a free trial of the more comprehensive and up-to-date Rose Report daily edition or to learn more about our other cotton analyses and analytic services please visit: http://www.rosecottonreport.com/.
