This was not a good day for new crop cotton from a technical perspective. December suffered a downside key reversal, defined as a day where you take out the previous high, but then take out the previous day’s low and close near the lows of the day. It could be just profit-taking ahead of tomorrow’s first look at USDA’s 2014/15 balance sheet, but it’s a definite negative sell signal nonetheless.
Here’s the week in review:
In Monday’s crop progress report, cotton planting was at 16%, up just 3 pts from a week ago and now down 9 pts from the 5-year average versus just a 5-pt lag a week ago. It’s down just 1 pt. from a year ago, however. The tardy pace was tied to weather extremes; too wet for much progress in the MidSouth and Delta and too dry in Texas. Yes, too dry.
It hasn’t rained at all and yet Texas planting advanced just 1 pt., to 16% from the prior week. That raises concern that some Texans are beginning to question the sense of planting at all unless they can see a profit from planting for the crop revenue insurance alone on dryland cotton. The forecast is for continued drought.
Export sales for the week were up from both last week and the 4-week average. China is still among the buyers, although no longer the dominant buyer. Last week China booked just 4,700 versus the biggest buyer, Vietnam, at 31,500.
Just after press time for this issue, USDA will release its May WASDE report which will include the first official forecasts for 2014/15 supply, demand, ending stocks and price. (Go to the website comments for actual numbers.) Prior to release, the average trade estimate put the total 2014 cotton crop at 15.3 million bales, in a wide range from 13.8 million to 16.0 million and up from 12.9 million for 2013. The average trade estimate for USDA’s first official ending stocks forecast for 2014/15 cotton is 3.8 million bales, up from 2.5 million estimated for the current crop year.
The rally in old crop appears to have stalled, but the rally in new crop creeps steadily upward, now less than a 900 pt discount to old crop for the first time since January. But global stocks remain plentiful whether you count China’s share or not. If USDA’s 2014/15 numbers come out at or above trade estimates just listed, further new crop price gains will be difficult. For that reason, we still advise catch-up sales if not at our recommended levels.