Dec cotton futures on the ICE joined the grains as a winner this week, picking up 51 points and settling at 63.13 while trading a weekly range of 215 points. Both the weekly high and low values were realized during today’s trading action.
Today was a heavy report day for the markets with the weekly US export report, the Sept WASDE report and the Sept crop survey all being released either at or prior to 12:00 PM, EST.
The US export report showed total net sales of just above 90K running bales against nearly non-existent cancellations while shipments were seasonally strong at about 143K running bales. Brazil estimated its old crop production at 80K bales under the USDAΆs 7M bales estimate.
The USDAΆs latest balance sheet showed estimated US production and ending stocks somewhat above our estimate, but below market expectations and well below the estimates on the higher end of the range at 13.43M and 3.2M bales, respectively.
The USDA also enhanced their US export projection 200K bales to 10.2M. Given the current pace of sales amid the impending thrust of the northern hemisphere harvest, ChinaΆs almost total absence from recent reports and the continued strength of US currency, we think that this is a head-scratcher (and weΆre not the only ones). However, I have been disgruntled several times when I thought that their prognostications were not in favor of the producer, so IΆll take this one!
Estimates and projections put forth in the world balance sheet were less supportive with production nearly unchanged vs Aug at 108.74M bales and consumption and ending stocks approximately 1M bales lower and higher, respectively. The most negative aspect was that nearly all of the addition to ending stocks was allocated outside of China.
For the US it was the addition of about 270K extra harvested acres that caused the increase in estimated production, and this caught me a bit off guard. Ditto for the small increase to world ending stocks. But the decrease in expected US yield should have been expected. The USDA went to the same plots within the same fields as in late July, counted bolls and categorized their size and, where possible, picked and weighted lint – on a late crop. Regarding the survey portion of the study there was no reason (given reports over the last month) to expect any great average change in those areas, either.
Despite my estimate of 13M bales of US production, the estimate put forth by the USDA today should be considerably more reliable. And I think the market, in general, has the same sentiment.
Nothing in this report changes our advice to producers, although it does perhaps deserve a reminder that any rally to the upside of the current trading range could be aggressive and short – rewarding producers with a marketing plan in place with both their spot and futures brokers while punishing producers waiting for the coffee shop consensus.
It is also worth remembering that both 68 and 70 cents are numbers with broad psychological appeal, and producer orders will be stacked up at those levels. The smart money will sacrifice a few points and place orders 10-20 points under those levels and take home a fixation while the other guys are still sweating it out.
For next week, the standard technical analysis for and money flow into the Dec contract remain bearish, but the USDAΆs updated US balance sheet is supportive. US export sales could very well improve again next week, but a stronger advancement toward the weekly pace requirement over the near-term seems important. Too, the US Federal Reserve bank will announce its interest rate decision on Thursday, Sept 17. The majority of pundits believe that an interest rate hike is not forthcoming this month, so a deviation from this expectation will likely be bearish for our market.
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
