Thompson on Cotton: Quality Fiber Supplies Short as Global Demand Grows

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    I apologize for the absence of our market commentary last week, as I was traveling the Plains of Texas getting a firsthand look at a quite impressive crop. Though it may fall shy of the 2007 record yield, the crop will most certainly exceed current USDA estimates given harvest conditions remain favorable.

    For this reason and others, market watchers were somewhat surprised to see prices recently return to the 70’s so near harvest.

    Though this advance was short lived and largely the result of harvest concerns, it did provide a golden opportunity for growers to price additional production.  In the end, however, it resorted back to the same pattern it has followed for months.

    Any advances to the top end of the trading range brought on by spec buying or the covering of mill purchases, quickly reverses itself as demand deteriorates at these higher prices.  Fortunately, this reversal has continued to find long standing support at or near 67 cents.

    Last week provided an excellent illustration of this as prices fell 320 points from the previous week.  Thursday’s export sales report reflected the decline in demand seen at these loftier prices. Weekly sales of 91,000 bales were a marketing year low and 56 percent below the previous week.

    To put in better context, weekly sales need to average 200,000 bales for us to exceed the USDA export estimate. Of course, some of this price retreat may well have been associated with the beginning of harvest and the price slump which generally follows as the perception becomes that cotton supplies are plentiful, whether they actually are or not.

    The takeaway from all of this is that our current trading range of 72 to 67 cents should remain intact, at least through harvest until world supply and demand is better known. The market will need to some favorable news from either side of the S/D equation to spark any sustained breakout to the upper side.

    Cotton Commentary

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    There are two key factors which could greatly influence the future direction of this market over the next few months.  In our favor is the fact that global demand does seem to be improving.  India’s production woes should open the door for greater U.S. export sales to cotton starved countries such as Pakistan, Vietnam and Bangladesh.

    With their auction now complete, China has depleted 12 million bales from their stockpile of reserves which is certainly a step in the right direction in freeing this albatross from around the neck of our market.

    Once again it’s quite apparent, quality cotton fiber will be in short  supply and the U.S. is positioned to be the world’s supplier of choice.

    Conversely, one must continue to worry about and monitor closely the large long position held by those outside the trade. Though providing valuable support to the market at present, they hold tremendous leverage over this market.  A reversal in market sentiment by them could severely threaten the bottom side of this trading range.

    Keep in mind, the shortage of quality cotton we spoke of earlier should prompt a strong sales basis again this Fall.  It’s too early to tell much about the quality of this crop, as available classing data has been limited.

    However, for anyone reading this, be it ginner or grower with uncommitted cotton, Choice Cotton would like to offer our assistance in seeking bids on any recaps you may have.  Simply send them to where we will help you find the best possible bid at no cost, saving you the time and inconvenience.

    In closing, I would be remiss if I didn’t extend our thoughts and prayers to our neighbors along the East coast. After looking at the latest storm tracker model, Hurricane Matthew, once thought to veer rather harmlessly into the Atlantic, is now predicted to make a more westward shift and threatened the East coast.

    This puts parts of Georgia, the Carolinas, and Virginia directly in the cross hairs of this intensive storm.  With cotton in these areas at its most vulnerable stage, the torrential rains and damaging winds expected with the storm could deal a devastating blow to this year’s crop.  This area of the Cotton Belt can ill afford to experience such especially on the heels of last year’s flooding.

    Hurricanes can certainly be unpredictable so it’s our prayer these areas will be spared.

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