For the week ending November 3, the still most active Dec’17 ICE cotton futures traded in a jagged, gyrating sideways pattern. Fundamental news this week included still decent  export sales, reinforcing recent demand export support above 66 cents.  The market appeared to digest and discount West Texas freeze impacts about as quickly as it did Hurricane Irma.  Dec’17 ICE cotton futures settled the week at 68.72 cents per pound, which is 52 points higher than where it settled the previous week.  Dec’18 cotton futuressettled Friday at 69.76 cents per pound.  The spread of Dec’17:Mar’18 spread edged out of its longstanding inverted status this week as a result of heavy spread trading and perhaps also the large uptick in certified stocks. A sample of option prices on ICE cotton futures saw relatively small changes from the previous week.  On Thursday November 1, an in-the-money 73 put option on Dec’17 was worth 4.00 cents per pound, while a 73:66 put spread was worth 3.93 cents (i.e., the depreciating out-of-the-money 66 put is only worth 7 points).  Out-of-the-money 73 call options on Jul’18 ICE futures were worth 2.73 cents per pound on Thursday November 1;  a further out-of-the-money 79 call on Jul’18 traded for 1.23 cents.  Looking ahead to next year’s crop, a near-the-money 67 put option on Dec’18 cotton cost 3.08 cents per pound on Thursday November 1, while an out-of-the-money 60 put on Dec’18 cost 0.94 cents.   Chinese and world cotton prices were mixed this week, including a notable uptick in Chinese prices on November 1.

With the post-Hurricane Harvey rally, we may have seen the last opportunity for ICE futures settling over 70 cents for a while.  Remaining upside volatility might come from surprising production forecasts over the next several months.  While the upside may be limited, there is a risk within six months to see futures under 60 cents.  But since that is all uncertain, growers should remain poised and ready to take advantage of unexpected rallies, and protect themselves from sudden sell-offs. Forward contracting, immediate post-harvest contracting, and/or various options strategies can be used to limit downside risk while retaining upside potential.  In particular, contracted bales could also be  combined with call options on the deferred futures contracts.  It is also not too early to be evaluating the worth of put spread strategies to hedge the 2018 crop (or, really, to hedge the insurance base price).  Hedgers still with put or put spread positions on Dec’17 need an exit plan wince the remaining time value will erode exponentially in October.