Rose on Cotton: U.S. Exports More Solid – Mills Coming to the Table

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    ICE Mar cotton futures picked up 84 points this week, settling at 62.83. Mar saw its intraweek low and high on Monday, with the rest of the weeks evincing subdued trading action. Mar corn and Jan soybeans finished a bit higher while CME Mar wheat closed modestly lower on the week. The Dec 16 contract gained 100 points on the week at 64.29.

    It seems that demand for US cotton for export continues to solidify near and above the 62.00 level. Despite all the rumors and reports supposedly garnered from the merchant sector of our market stating that demand remains tepid at best, the hard figures tell a different story. The US sold in excess of 210K running bales for export for the week ending Nov 12, with total cumulative net sales over the last three sales periods in excess of 500K running bales, or approximately 5% of the USDA’s 10.2M bale export target. It seems that lower than average quality and shrinking size of this season’s US and international crops has prompted mills to come to the table.

    Naysayers will point to the slow pace of export shipments this season, which is a concern not without merit. However, we tend to think that with a crop as late and delayed in its harvest as this season’s US crop has been, shipments will improve.

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    On the supply side, estimating bodies and agencies in China, India and Pakistan continue to put forth estimates below those proffered in the USDA’s Nov WASDE report. The USDA’s attaché in Turkey also recently estimated this season’s domestic production lower than the USDA’s estimate of 2.8M bales. With respect to the US, the crop is just not getting any larger at this point of the season, especially considering the inclement weather that continues to plague producers as they gather their crop.

    Growers continue to take advantage of the strong basis and we think that is wise. While we see a tightening supply situation, it is not uncommon to see as much as a 2 cent difference in basis being offered by major merchants for a particular recap on a given day. This tells us that if the currently aggressive merchants find they’ve met their needs, producer prices could take a 1-2 cent hit even if the market remains steady or friendly. It bears repeating that producers are almost always ahead of the game when they sell to an attractive basis and use options to capture additional profits.

    For next week the standard weekly technical analysis for and money flow into the Mar contract remain somewhat bearish, but the market is no longer oversold. Technically, a breach of the 63.60 level will likely result in fresh speculative buying of the Mar contract. Further, ICE margin requirements for speculators were recently reduced 13%, which we see as price supportive. Next week’s export report is apt to again put forth relatively positive sales figures. On the downside, next week will be shortened by the Thanksgiving holiday which could be forerun by some speculative profit taking.

    As of Nov 16th, 14 of the college football teams within Associated Press Top 25 found their homes in cotton producing states; half of the top 10 and 3 of the top 4 also are in this geographic category. Hence, I am guessing that there is a high probability that many readers of this column are also fans of collegiate football.

    There are now 5 unbeaten teams remaining in the major college football ranks. The Oklahoma Sate Cowboys are among them, and the only way that I could be happier is if they continue their streak. I may have been a bit hard on the Razorbacks in earlier columns; they have won 4 straight while stealing games from ranked Southeastern Conference foes Ole Miss and LSU on the road over the past two weeks.

    We want to wish all of our readers a very happy and safe kickoff to the holiday season – a point in the calendar year that most US retailers now think is someplace north of Labor Day and just south of Halloween.

    Louis W Rose IV, PhD has worked with cotton as a producer, consultant, analyst and trader. Rose holds degrees in Education, Agriculture, Plant Science and Business (MBA) from AR St Univ, OK St Univ and the Univ of Memphis, respectively. He has held positions with Aon Reinsurance and Cargill Cotton. Rose currently provides analytic services for various clients and media outlets and is the co-founder of Risk Analytics, LLC, producers of The Rose Report, which he authors. For more info on The Rose Report or analytic services, please visit:


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