By Dr. O. A. Cleveland
Special for Bayer CropScience
The continued drought in Texas and Oklahoma spurred the market higher last week. Outside support came from Wall Street’s buy signal of oil and the lower U.S. dollar. The bullish oil report brought funds back to the long side in numerous commodities, including cotton. Funds are now well positioned to pump more money into the cotton ring. Nearly all technical trends point upward with the December contract taking the lead. Indicators not calling for a “strong buy” recommendation suggest either “buying” or “holding” long positions in cotton. Nevertheless, Mother Nature has another week to work her miracle. After that, the last planting date will be passed in all areas of any significant acreage in Texas.
The first week of June is now on the doorstep without any creditable forecasts for moisture over the vast dryland acreage of Texas. Too, the absence of moisture will also negatively impact possibly as much as half the irrigated crop since many irrigation wells are actually supplemental wells.
Without rain in the next two weeks, yield potential will fall and abandonment could increase sustainability. Insurance adjustors are in the filed in the Rio Grande Valley – still no rain and well past Cinco de Mayo. Adjustors are ready to fan out over the Coastal Bend next week to survey the damage. Recall the 1973 and 1974 Dawson County (Lamesa) comparisons covered last week. Significant parts of Texas are on the verge of experiencing between a 50% to 85% reduction in production compared to 2010 levels, unless favorable rains fall in the next two weeks and, more importantly, continue to fall on a very timely basis for the remainder of the growing season.
Fresh demand remains hard to come by as only limited export sales are being made for immediate delivery now that the Southern Hemisphere harvest is in full swing. U.S. export sales suffered the ninth consecutive week of negative sales with a negative total of 32,960 RB of Upland for the week ending 5/19/11. Nevertheless, as mentioned last week, U.S. exports remain on track to reach 15.5 million bales.
Domestic U.S. demand demonstrated a limited slowing as the April consumption was annualized at 3.6 million bales compared to the USDA estimate of 3.8 million for the 2010-11 marketing year. Yet, the 2011 year to date annualized consumption stands at 3.7 million bales and April 2011 consumption was some 150,000 bales higher than the April 2010 usage.
The December contract has multiple layers of support down to 113.76 which corresponds with both the 4-week, and the 13-week low. Most of the key support lies above 123.00. The 4-0week high is 131.59 and stands as a resistance level, but the 13-week high, also the life of contract high, of 144.66 is a target that Mother Nature will activate should Texas miss the moisture this week.
The week ended with the Cotlook A Index at 167.15, and the forward index at 147.45. Look for both to be up with Tuesday trading.
