The bulls posted a small win on the week, with the ICE Decembercontact picking up 24 points versus last Friday’s settlement, finishing at 81.63. The December– Mar spread again strengthened somewhat to (16) points, far less than full carry.
The market found support this week just above its recent lows. The latest on-call report from CFTC evinces that mill fixations of outstanding basis purchases has lent support to our market. That is, trade short covering has offset speculative liquidation in what has proven to be an extension of most participants’ recent risk-off attitude.
Did All The Rain Matter?
Too, the market seemed to react positively to this week’s U.S.-China trade negotiations in D.C., but these meetings ultimately concluded with little, if any, discernible accomplishments.
Weather-wise, the U.S. cotton belt had a relatively uneventful week. There were scattered showers in the High Plains and locally heavy rains in the north Delta, but nothing we can point to yet as a major impact on regional crop condition or expected yield.
There is talk of boll rot in some locations, and that is worth noting, but it is too early to consider that a major factor in yield outside isolated pockets.
Drought in Australia and a variety of problems in India continue to merit attention, but those factors are priced into the market at current levels.
Exports Are Up
Demand for U.S. cotton for export increased significantly over the most recent sales period. Total export sales and shipment against the 2018/19 MY for the week ending August 16 were approximately 192K (~20K to China) and 165K running bales, respectively.
Sales were ahead of the weekly pace required to match the USDA’s export projection while shipments were well off the pace requirement. The U.S. is 58% committed and 3% shipped versus the USDA’s latest prognostication. Sales against the 2019/20 MY stand at nearly 1.4M 480 lb bales.
Data indicate that sales figures to be put forth next week should at least resemble those put forth this week. However, the Eid al-Adha (Feast of the Sacrifice) celebration in predominantly Islamic nations seems likely to have hindered sales for the week ending August 23.
It’s Not A Bad Place To Be
Producers should take comfort in the December contract’s ability to find support above 80 cents, although the inability to hold a price above 83 cents makes earlier predictions of a return to 90 cents seem a little far-fetched.
With that said, it isn’t unusual for the market to hit seasonal doldrums in Aug, and trading in an historically high range (80-84) isn’t a bad place to be. Throw in the likelihood of a 6-8 cent payment from the USDA, and producers with a crop should sleep pretty soundly at night.
More on Cotton
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Barring a surprise from the ongoing trade talks or major weather incident, early yields and quality and the Sept WASDE will be our next potential market movers.
For next week, the standard weekly technical analysis for and money flow into the December contract remain bearish, but the market also remains in a technically oversold condition. A significant amount of physical support remains under the current market – specifically at 80.00 and above – as we have witnessed over the last two weeks.
Have a great weekend!
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