Thompson on Cotton: Market Tug of War Between Funds and Trade

    ©Debra L Ferguson Stock Images

    Last week began with the release of the USDA supply and demand report on Monday. Not meeting expectations, the market traded almost limit down giving up 239 points in Monday’s trading. By now you have probably seen the numbers, simply put USDA increased both U. S. and world ending stocks by 200,000 bales each while surprisingly leaving the U.S. export number unchanged.

    Though not bullish numbers, they were certainly not limit down bearish either.

    As has been the case in previous selloffs, the 65 cents floor held firm while the market spent the remainder of the week trying to claw its way back with small daily gains to settle Friday at 67.28, recouping nearly half of Monday’s loss. The market now finds itself being pulled in the tug of war between the funds and the trade.

    The funds who remain historically long are betting the market goes higher while the trade sees crop fundamentals (large crop and slow demand) as favoring lower prices. The question becomes who will win out.

    In the near term look for the market to trade in the range of 65 to 71 cents until harvest is further along and more is known about the size of this crop. In any case, if a significant rally does occur outside this range into the low 70’s it most likely will be short lived and require quick action, for the funds have a substantial position upon which to liquidate.

    Cotton Commentary

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    As for market strategy going forward, those who took advantage of the July rally by pricing a portion of your crop in the 70’s have a little cushion to wait and see how this plays out. Those with bales still on call should watch for any advances to the high end of this range and be quick to price additional production.

    If you have uncommitted cotton this close to harvest I would take advantage of the strong sales basis expected for quality when selling on recaps. Don’t delay, for this may be limited with the large volume of cotton previously contracted.

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