By Jeff Thompson, Autauga Quality Cotton - Prattville, AL
The December contract has managed to close above 60 cents ever since its breakout to the bottom of the long standing trading range several days ago. When this breakout occurred the question became will mills take advantage of these lower prices or wait on the sidelines to see how much lower they would go.
Fortunately, they have been buyers, albeit hand to mouth, but enough to prevent a follow through and keep December from settling lower. Some solace could be found in that the drop in futures was accompanied by a lower average world price putting last weekΆs POP at 7.68 cents and thus buffering this decline.
This week has started out on a positive note with the market trading up, settling today (Wednesday, 10/7/15) at 62.05, a gain of almost 200 points from last weekΆs close. Several factors prompted this move, not the least of which was the bad weather in the Southeast and its potential to lower production. However, a more far reaching effect may have been found in the commitment of tradersΆ report, which showed activity from the funds has slowed down considerably. Though still largely holding a short position, they ceased adding to it.
Another boost this week came from the financial markets, which have had a strong showing, as well, pulling commodities along with it. Whatever the reason, it created an opportunity whereby those who had cotton to POP could do so and when combined with the current futures price sell their cotton near that elusive 70 cent target. Taking advantage of a rising futures market before the POP has a chance to drop is just the scenario weΆve suggested growers look for this fall when pricing cotton. This coming week the POP is expected to drop to near 7 cents.
Without a substantial increase in demand itΆs very hard to make a case for cotton prices climbing back to the highs of the previous trading range. The USDA will release its October WASDE report Friday at 11:00 a.m. CST. We expect very little in the way of changes from the September report. Most of their production calculations were done prior to the bad weather, so we donΆt expect any major adjustments to the U.S. production number.
We are coming off two weeks of good export sales, each exceeding 100,000 bales. Though we are still behind the pace to reach the USDA export estimate of 10.2 million bales, it is most likely too early for them to adjust this number. One area they might give attention to is foreign production, most notably India where production is predicted to be off. Here again, USDA will probably take a “wait and see” attitude this early in the harvest season. Therefore, expect a rather market neutral report. In any case, we will monitor this carefully for any market moves it might trigger.
