Doane Cotton Close: Post-Report Strength Wanes

    The post-WASDE report strength Thursday and Friday of last week did not carry through the weekend.

    Once again the reality of a big jump in ending stocks for the U.S., though at the lower end of pre-report trade estimates, plus overhead resistance on charts, led to renewed selling today.

    NASS came out with crop progress and condition reports about an hour ago and condition ratings were mostly unchanged. The portion of the crop rated good to excellent remained at 49%, the same as last week and 6 pts better than a year ago. The portion rated poor to very poor rose a point, to 18%, but is still lower than the 24% rated poor to very poor a year ago.

    Fields with bolls opening now account fro 51% up 2 pts from the 5-year average but well ahead of last year at 34%. USDA has commenced reporting harvest progress this week; with the first report at 6% harvested; 1 pt below the 5-year average but 2 pts ahead of last year for this week.

    USDA report: Prior to release of Thursday’s September crop report, trade estimates of U.S. production averaged 17.26 million bales in a range from 17.1 million bales to 17.4 million, down modestly from USDA’s August estimate of 17.5 million. But USDA not only reduced beginning stocks by 150,000 bales, it cut both acres to be harvested and average yields to produce a new production estimate of 16.54 million, down 960,000 bales from August. So the supply adjustments were quite price friendly.
    These were mitigated, however, by an unexpected reduction of 700,000 bales in estimated exports.

    Therefore, ending stocks declined by by just 400,000 from August, to 5.2 million, at the low end but within the range of pre-report trade estimates of ending stocks and enough to generate gains in cotton futures.

    Globally, estimated ending stocks rose again, but only slightly, to 106.29 million bales from last month’s 105.08 million, or just over 1%. It’s still huge at an 11.5-month supply, but not much more than last month at an 11.3-month supply. It was the continued increase in global ending stocks, notwithstanding the drop in U.S. ending stocks, which led USDA to revise its forecast range for average U.S. farm price down slightly at the upper end, to a range of 58-70 vs 58-72 in August.

    We looked back at the history of cotton price changes for the close following the release of the September reports. Since 1980, December cotton has closed higher 23 times and lower 11 times. Prices had closed higher seven of the past eight years. After last Thursday, it made eight of the past nine years.

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