Superstitious, you bet! Hate to admit it, but I am. Hence one of the reasons you haven’t received a market commentary in a few weeks. I’m reminded of when a pitcher is only a few outs away from throwing a no hitter and his teammates dare not get near him in fear of jinxing him.
So, with cotton prices riding a strong tailwind over the past few weeks, I certainly didn’t want to get in its way, but at the same time it’s difficult to contain the excitement.
Mired for weeks in a trading range between 69 to 72 cents, March futures broke out in late November rallying over three cents to close yesterday at 75.03. The majority of this advance coming since 12/12, which ironically was on the heels of the latest USDA Supply/Demand report.
This report, accompanied by other indicators, are creating a strong case that strengthening demand, the driving force required for any sustainable advance, seems to be for real.
The USDA still maintains our domestic crop will exceed 21 million bales. However, harvested yields thus far simply aren’t passing the eye test, yielding less than anticipated. Therefore, look for the final production number to be a million bales or so less than predicted.
Though a 20 million bale crop would be the largest in recent history, if weekly export sales are any indication we should have no problem disposing of it. Total export sales have now reached 10.8 million bales with over six months still remaining in the marketing year. Needing to average only 140,000 bales a week in export sales to meet the USDA estimate; we now are selling over twice this amount.
You would have to go back to 2010-2011 to see a more favorable world balance sheet. World ending stocks are estimated to decline by 2.8 million bales as global production is predicted to exceed world mill use ever so slightly.
Look for continued improvement in these numbers over the next few years. China will be a key player as they further deplete their reserve stocks and now have become environmentally friendly instituting government policies greatly hindering polyester fiber production – all of which will certainly cause China to become a larger importer of cotton.
Our competitors in the export market – India and Pakistan – are experiencing some significant production woes of their own in both yield and quality. This, along with lower beginning stocks, will make them less formidable as competitors.
Without question, the breakout of prices over the past week is an initial reaction to these numbers. What can we expect going forward? That old classic tug of war game, we’ve spoken of before, is shaping up again. The mills have a huge volume of on-call sales, some 14.5 million bales yet to be priced. This constitutes a great deal of subsequent buying power whenever fixed.
On the other end of the rope we find the spec community, a group that has attained a renewed love for ag commodities, most notably cotton. Favorable fundamentals and enticing chart patterns have them adding to their already long position. In the past, the mills would patiently wait to price cotton on any market sell offs brought on by spec profit taking, thus keeping the market range bound.At present, however, their actions and attitudes are different from years past. As if fearing market momentum, mills are moving their fixation orders up with the market rather than waiting for prices to fall. Hence our bullishness because such buying power when further fueled by speculative activity could easily drive March into the high 70’s.
To our good fortune, new crop prices are not trailing far behind. December, now trading around 73 cents, presents an excellent pricing opportunity for those looking ahead. We at Choice Cotton, a producer owned marketing company, would like to extend our services to assist you in developing a sound marketing plan for the 2018 crop.
We currently have available forward contracts along with other marketing alternatives that can be customized to meet your needs. Let us serve as your marketing consultant by contacting us at 334-365-3369.
Happy Holidays to you and yours.
