Doane Cotton Close: Weekly Exports Plummet

    Strictly Cash Marketer: You should be 75% priced on expected 2014 production. Use this week’s surge to push old crop sales to 90% and hold just 10% back as “gambling stocks” for further gains tied to reduced acreage prospects for new crop. No new crop sales advised just yet for the same reason.

    Futures/Options User: You should be 90% sold on prior advice. Catch-up advised if not, but no new crop pricing advised on our expectation of sharply lower acreage next season.

    Today’s weekly USDA Export Sales report seemed quite bearish for cotton, since last week’s fiber sales total came in far below the week-prior figure. That is, the result posted last Thursday topped 422,000 bales, which dipped from the extreme 2014/15 crop-year highs posted during the prior three weeks. The latest figure was stated at 52,200 bales, down 88% from the week prior and 89% under the four-week average.

    Taken on its face, that number looked quite bearish for ICE futures. However, as suggested Wednesday, traders had apparently anticipated a substantial reduction, since futures suffered only a modest setback in the wake of the news, then worked higher through the balance of the day. Indeed, the most-active May contract ended the day having risen 0.46 cents to 62.48 cents/pound.

    Actually, I’m inclined to think events in the financial markets powered the late cotton rally. That is, the equity markets rose rather substantially, with the S&P 500 index seeming set to challenge its December high. That’s evident from the chart above, where the index is represented by the aqua-magenta candlesticks. Traders may also have been reacting to the concurrent drop in the value of the U.S. dollar.

    As pointed out in the past, both of these phenomena can easily be interpreted as bullish for cotton demand, from the domestic and export sectors, respectively. Note that I’ve overlaid May cotton futures (red-green candlesticks) in the chart as well, with the underlying intent to illustrate the stock market’s influence over cotton values. The relationship clearly isn’t all that close, but you don’t normally see rallying cotton on days that stocks are down and vice-versa.

    Ultimately, the fact that cotton prices have apparently broken out above technical resistance and the pivotal 60-cent area seem to bode well for the short-term outlook.

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