The ICE Mar contract gave up 24 points on the week as the market negotiated improving demand for US cotton for export and loosening domestic and world supplies, finishing the week at 70.81. The nearby spread strengthened 18 points on the week at 31 points of carry.
We closed last weekΆs column by saying that we expected US export sales to be off versus the previous sales period, but that we also hoped we would be found to be incorrect. Incorrect proved to be quite an understatement with the US posting marketing year highs for both het sales and shipments of nearly 410K and 240K running bales, respectively.
For the first time during the current marketing year shipments approached the weekly pace required to meet the USDAΆs export target, although the target is now 12.2M bales versus the relatively long-standing target of 12M bales.
Outside of the enhancement to the US export projection, USDAΆs Dec balance sheet certainly had a bearish flavor.
Aggregate world ending stocks were projected nearly 1M bales higher Vs Nov at 89.15M bales while US ending stocks were raised 300K bales to 4.8M. Expected world production was raised nearly 1M bales versus Nov at nearly 104.25M bales, with the US and Australia almost entirely responsible for the total net gain in projected world ending stocks.
Projected consumption at the aggregate world level was near unchanged at just below 112M bales while domestic consumption was projected 200K bales lower at 3.3M.
Further bearish is the increase in projected ending stock outside of China of nearly 1.1M bales – 800K outside of the US. The US is expected to account for 35% of world trade in 2016/17, which is supportive, if it occurs. And, if it does, it may well not occur without a significant market dip(s).
The most supportive factor for our market seems to remain the very heavy mill on-call position against the Mar contract, against all contracts remaining in 2016/17 and against all active contracts, as well. That is, of course, if they do not grow fangs, claws, and fur and develop a rather nasty disposition. The aggregate mill community has done such before.
Internationally, cotton arrivals continue to accelerate across India with the recent modest mitigation of currency liquidity while Pakistan removed its ban on imports of Indian cotton this week, which is not supportive.
Producers enjoyed yet another week of a strong basis, despite the lackluster futures action. For the reasons weΆve outlined for the past several weeks, we continue to recommend selling into strong basis.
For next week, the standard weekly technical analysis for and money flow into the Mar contract remain supportive to bullish. Sooner or later US net export sales will cool (they usually do around the holidays). But price action does not suggest that such has to occur for data to be reported for the week ending Dec 8. Still, on the whole, the near- to medium-term S&D balance sheet looks more bearish than bullish – at least to us.
