by Dr. O.A. Cleveland for Cotton Grower
Cotton eased into the Memorial Day weekend a bit unsteady, but still standing erect.
The market was down on the week, but only after failing to close above its 59.50 cent resistant level. Carry returned to the market, as the new crop December futures contract eased some 64 points over the nearby July contract. Excess carryover both in the United States and globally continue as the bearish force keeps a heavy hammer over this market.
The near-term fundamentals, on the surface, appear positive for prices. Technicals continue to look near term friendly. Additionally, the market has traded very well within its 55.50 to 59.50 cent range with little attempt to deviate from that dominate range.
Finally, the magic word (China) continues to show up in the export sales report, and that same word surfaces overnight in export sales inquiries. Thus, most traders and growers alike are locked onto what China does or does not do. The textile industry is gradually increasing its activity, which is a plus. But a new world crop is in the ground and, as mentioned, excess carryover stocks already exist in all markets. Expect the current 55.50 to 59.50 cent range to continue into the July contract’s first notice day (FND) of June 24, just five weeks from now.
The market can be expected to react to the level of certificated stocks, as the principal Memphis merchant appears to have solid demand for quality stocks. While growers still have available cotton, the Board continues to offer the least cost cotton for the merchant needing to fulfill export commitments. Yet, quality stocks will command a bit more premium than currently offered as harvesting of the 2020 crop begins.
Too, while China remains a magic word in the cotton market, it is no longer the amount of cotton China buys in the export market. Currently, Chinese buying is a combination of meeting the Phase 1 agreement and rebuilding its Strategic Reserve. China is ripe to do this in a period of cheap (low) prices.
However, the key has become shipments. It is obvious that all the current buying (2019-20 marketing year) will not get shipped. There is simply not enough time to ship purchases recently made and that are currently being made. Thus, the question to be answered is whether China will move shipments into marketing year 2020-21 or simply cancel the purchase agreements. The inclination of the market historically was that shipment would be made. However, that is no longer a safe bet, as cancellations have become a very active political game with the Chinese. Thus, this becomes a major reason that the market will continue with its narrow five cent sub-60-cent trading range.
China does remain as the primary buyer of U.S. cotton, but export sales and shipments have slowed. U.S. shipments on the week were only 256,800 bales. Upland net sales for the week were 128,900 bales, and Pima sales were only 600 bales. Upland exports to date are 10.81 million bales. This is some 13% percent above the prior year’s pace and 72% of the USDA 15 million bales estimate. There are only some 10 weeks remaining in the marketing year, but seasonally, this is the time for large weekly shipments.
Other fundamentals gaining notice this week were a somewhat slight uptick in yarn demand at many locations, as well as the noted late planting problems facing the Southeast and Mid-South and weather problems in China. Yes, there is some lateness, but let’s not be too concerned about late U.S. plantings until after July 4. Too, don’t look for any crop – cotton or soybeans – to get planted this year inside the Mississippi levee.
The COVID-19 payment to growers will be 9.5 cents per pound based on 50% of one’s respective crop. There are more than a couple of snake eyes in the provision, so be sure to check with your producer representative. The limit appears to be $250,000 per entity and does not count against any program payment. The payment is not a subsidy or disaster payment, but a payment made due to COVID-19 market interruption.
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