The cotton market joined the grains in the winnerΆs column this week, although cottonΆs weekly gain was muted at a mere 9 points vs last FridayΆs settlement. After spending the first three days of this week making new intraday lows and life of contract low settlements, the market found some support on its much oversold condition, gaining 67 points over the last two days and trading as high as 61.17 today.
Sometimes, it seems, that winning is elusive. Ditto for getting a market forecast correct. Last week, despite the FedΆs decision not to raise interest rates, cotton prices dropped precipitously, presumably on concern about medium- to long-term demand. However, we (and most analysts) expected a recovery in prices via the prospect of increased export sales over the near-term. This week, the Fed has issued statements strongly suggesting than an interest rate hike is forthcoming by the end of the year. This has all occurred at a very inopportune time for producers and bulls.
With US currency trading not far below par, spinners have turned, in part, to less expensive alternate growths as the harvest progresses across the northern hemisphere. Combined with seasonal harvest pressure to ICE futures, this makes for a slippery price slope.
To make matters worse, some analysts expect the relative value of US currency to incite increased sowings across the southern hemisphere in the coming weeks and months, which, of course, is just what the US producer doesnΆt need – increasing supplies from export competitors. And it all seems very plausible.
Hence, it seems, that upward movement in our market will be largely affected by technical factors and outside markets as the market awaits to see how much demand was found for US cotton on next weekΆs US export report and upcoming production prospects on the Oct 9 WASDE report release. On something of a positive note, we do expect both of those reports to be more supportive than not.
With respect to exports, the market had recently found a level at which around 100K running bales per week can be sold. Presumably, the markets dip below 60.00 could prompt US export sales to finally come to par with the weekly pace required to meet the USDAΆs export target of 10.2M bales.
Regarding the weather market, there are few international concerns outside of unwanted rain over parts of India and Pakistan. In the US, mostly smooth sailing is expected over the near-term. However, significant rainfall is expected over portions of the southeastern US this weekend with some forecasts pegging localized totals at near 5 inches over NC and VA.
While this is likely friendly for market prices for a US crop that we think is more likely to be shorter than not, this is not the manner in which we would prefer to see prices move higher. We wish our friends along the Atlantic coast the best of fortunes for this seasonΆs harvest.
Given the anticipated heavy rains in the Southeast, some merchants have expressed nervousness about both quality and nearby supplies. Producers with higher grade recaps should consider taking advantage of a strong basis to move their early cotton, and save their consolidation efforts for later in the season. There has also been some last minute forward contracting activity at a moderately strong basis, and this could be a consideration for producers who are still completely unfixed.
For next week, the standard technical analysis for and money flow into the Dec contract are bearish, but the market remains in a technically much oversold condition on both a daily and weekly basis. This weekΆs export report will tell the eagerness of spinners to buy US cotton below the recent 61.20 – 68.00 trading range. We expect the results to be somewhat encouraging.
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