Despite trading a range that was completely north of last week’s 58.64 settlement the May contractΆs 90 point weekly gain seemed underwhelming given the continued strength of US export sales. Dec picked up 63 points on the week, but again failed to settle above the psychologically significant 60.00 mark.
As expected, export sales for the week ending Feb 11 were strong – a marketing year high of nearly 310K running bales. It seems a foregone conclusion that the US will sell 9.5M+ statistical bales of cotton before July 31, but the continued slow pace of shipments leaves a great deal of uncertainty with respect to how much will be carried into 2016/17.
The USDA will host its annual Ag Outlook Forum next Thu and Fri just south of D.C., at which they will reveal their thoughts on the 2016/17 supply and demand prospects. The USDA has historically had a tendency to project US production a bit higher than the National Cotton Council, but the marketΆs decline since Jan 15 may change that this year. We look for the USDA to project both world consumption and production higher for the coming marketing year while also projecting ChinaΆs stocks lower. Overall, I would expect that the report will be neutral (at best) with respect to market influence.
Regarding old crop supply, we (and others) continue to expect the world crop to shrink with upcoming WASDE report releases. Domestically, USDA-AMS produced its final classing report for the 2015 crop this week with a tally of just below 12.75M bales (480s) classed. There will be a few straggling bales yet, but we expect final production to be logged near to 12.8M bales, at the most – 140K bales shy of the USDAΆs official US production estimate. We think that US ending stocks for 2015/16 could still prove to be southward of 3M bales.
The supply side of the market remains friendly with demand continuing to be the villain. If China does not hold a fire sale with its massive stockpile, demand may very well improve once terms of the release are known.
One hears all sorts of things about China. Of course export rumors continue to bounce about, but a shorter supply of cotton in the world will likely be required before China turns exporter. And, we have even heard speculation that China might default on its WTO commitment to purchase 4M bales annually. This, combined with Turkish anti-dumping accusations and the fear by the current administration that the reclassification of cotton as an oilseed would draw the ire of Brazil, prompted me to ask: “Could the US lodge a grievance against China for dumping its stocks if she releases them too cheaply?”
Almost immediately I realized that I had a staunch stereotypical view that WTO agreements were something that US agriculture could only violate. It was a stereotypical as bowlegged cowboys, baton-twirling Irish policemen on beat and the notion that “white men canΆt jump” (some apparently can).
Perhaps someone should inform Secretary Vilsack and the current administration that such a stereotype is nonsense and remind them of their duty to help ensure the prosperity of our agricultural production sector.
This coming weekend, many of the movers and shakers in the industry will gather in Memphis for the annual Farm and Gin Show. In particular, the Friday morning marketing conference has historically drawn a whoΆs who of market movers, brokers, ginners, and savvy growers, with as much information (and innuendo) being shared around the coffee pots in the back of the room as from the podium when Joe Nicosia gives his potentially market moving speech.
The possibility of market moving news at the event effectively throws a wet blanket over business in the country in early part of the week of the gin show. Rumors trade at a premium, but actual cotton typically waits until the week(s) following to change hands.
Savvy producers would do well to spend a day or two in downtown Memphis next weekend, particularly in those locations where coffee or alcohol flow freely. If thatΆs not a possibility, pay attention to social media reports for reactions to the talks. WeΆll be posting commentary to our Facebook and Twitter feed, and will be watching others who do the same.
For next week the standard weekly technical analysis for and money flow into the Mar contract are bearish. Next Thu could prove volatile with expected strong export sales data closely followed by the USDAΆs first prognostications for the upcoming marketing year.
Have a great weekend!
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
