Cleveland on Cotton: Market Caught Between Bulls and Bears

    Cotton harvest. ©Debra L Ferguson

    Cotton prices muddled through another week with limit days, both up and down. Yet, trading did give us a whiff of the possibility that 81-to-82 cents would provide support. That support looks real, but we cannot completely erase the potential for a drop to the 78-cent support level.

    However, as beat up and bloody as the cotton market is, it will be refreshing to hold above 80 cents. Nevertheless, the cotton market is always the most bearish at the bottom.

    The October USDA supply demand report (due Oct. 12) should provide market direction. Yet, the equity and finance markets will provide price leadership for the cotton market. Again, it is the economy. Cotton fundamentals are not strong enough to ward off the influence of other markets.

    Aside from the failure of demand, the bearish news comes in the form of increasing open interest in a time of falling prices. This is a bearish price indicator. The U.S. dollar is trading at a 20-year high to most currencies, meaning that U.S. commodities are more expensive in relative terms.

    Additionally, there is scant evidence – actually nil – of any improvement on the demand side of the price equation. While there was a minor increase in weekly export sales on the week, the sales came at much lower prices, thus negating any short-term increase in demand.

    Too, the only significant buyer on a consistent basis remains Pakistan, which bought 73,000 bales on the week. Other major buyers were Turkey, Bangladesh, and Taiwan. Only one other country purchased more than 5,000 bales and that was Mexico (5,300 bales).

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    Net weekly sales were up from the prior weeks, but only a small handful of countries were in the market. Thirteen countries made purchases, and four of those cancelled more sales than they made on the week. Export sales for the 2023-24 year were 48,500 bales, with almost half of those going to Pakistan. As stated in prior reports, Pakistan will remain a consistent buyer, and Bangladesh will be a decent buyer.

    Chinese knitting and weaving mills are being pressured by the lack of retail demand. As a result, the big Vietnamese spinning industry has reduced working hours due to slowing yarn demand. Yarn inventory in Vietnam is approaching an unbearable level. Of course, all of this is simply echoing the simple statement “cotton demand is under severe pressure.”

    USDA is expected to reduce world consumption as much as two million bales in October’s world supply demand report. The current estimate is 118.63 million bales, and estimated world carryover is currently estimated at 84.75 million bales. U.S. carryover is bullish.

    Yet world carryover is bearish and carries more influence in a period of weak world demand. Thus, the October report will not turn the market. At best, we can only hope to check the market’s fall and offer price stability for the near term.

    The Cotton Roundtable group will discuss the report at 1:30 pm Central on Oct. 12. Here are the program details to listen or participate.  

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