For all practical purposes, Mar 14 was unchanged on the week, losing 7 points while trading within an extremely tight 151-point range. A weekly range has not been this tight since the week ending Dec 21, 2012, when Mar 13 traded a scant 128 point range for the week. We attribute much of this lack of volatility to light volume per the holiday season.

The market has been supported of late by an undeniable tightness of US stocks; telltale signs have been the continued outpacing of net US sales over export shipments, the recent dramatic decreases in ICE certificated stocks, and very strong basis offered by merchants to producers in the country.
This tightness was accentuated again per this weekΆs US export report, which boasted nearly 250K RBs of total net cotton sales.

Since October 10, the US has logged net sales of 2.85M statistical bales and total commitments for the current MY now stand at 70% of the USDAΆs 10.4M statistical bale export projection; is it any wonder why there has been some discounting of the USDAΆs latest US export projection? And looking forward, China continues to consistently place second behind Turkey in the destination of US exports race; CNCRC reserve off-take thus far has been lackluster. Yet, the world S&D is projected looser, with significantly more cotton expected to be available outside of China.

On-call sales for the week ending December 12 were up significantly, indicating that demand for cotton during early 2014 will most likely not decline from its current projected level.

Perhaps Mar 14 futures would have rallied further, at least on intraday highs, had the US dollar not found new strength, which is expected to make new arrivals of cotton in India (whose rupee is struggling) more attractive to importers. The US dollarΆs strength was largely due to the Federal ReserveΆs decision to taper its monthly bond purchases by $10B.

Somewhat surprisingly the dollarΆs strength increased the following day in the face of US unemployment and existing home sales data that failed to meet positive pre-report expectations. Positive US GDP growth for Q3 will likely be further supportive of the US dollar next week.

Technically, Mar 14 is strong, but there are significant signs that it is overbought, and likely due some correction.

The more interesting analysis for producers is that pertaining to Dec 14, the physical delivery month. Many analysts are quite bearish Dec 14, but we are not. July 14 has been inverted over Dec 14 at 500+ points for some time. And, if cotton is expected to be that tight in July in the face of reduced export demand this MY versus the previous few years, it is our thought that the market will bid for cotton acreage as the spring planting season approaches.

Corn and soybean prices will play a role in any cotton rally as well as the 2014 acreage competition gets underway, but our thoughts are that cotton will need to occupy more area in the southern states that is more amenable to corn production (i.e. irrigated acreage) in order to ensure adequate supply in the face of current tight domestic stocks.

We do not believe that Dec 14 will necessarily need to trade in the low to mid 80′s for a particularly long time, but we think that it will occur.
For Mar 14 for this week, our bias will be lower on probable slow trading action with a range of 80.00 – 84.00 on the inside or 78.50 – 85.50 on the outside.

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.