Though mired in a month-long trading range, cotton prices gained three cents on the week as March futures closed Friday at 83.20. This was largely due to Wednesday’s limit-up move, a response to some encouraging comments by Federal Reserve Chairman Powell. This was but one item in a host of positive macroeconomic news. However, turning to fundamentals, the news wasn’t good as there continues to be little sign of demand improvement. With knowledge of this and with weekly trading volume rather low there is serious concern whether this most recent advance has any legs, especially considering Friday’s 165-point retreat.
Consumer spending ramped up in October as households took advantage of a bump in wages and slightly lower inflation. When adjusted for inflation, consumer spending rose 0.5 percent in October compared to the previous month, the biggest increase since January. In addition, the Fed’s preferred measure of inflation, the personal consumption expenditures price index rose 6 percent from a year earlier but down from 6.35% the prior month. Even though the Fed targets 2% inflation, the appearance prices may have peaked have them contemplating dialing back the size of subsequent interest rate hikes. So said Fed Chairman Powell in a speech last week causing stocks to skyrocket and the Dollar to tumbled both of which favor commodities. Another positive last week, with so much of the latter carried cross country by rail, Congress’s intervention to prevent a strike by railroad workers spurred commodity prices and saved the U.S. economy an estimated two billion dollars a day.
Sadly, last week’s export sales were only slightly better than the dismal sales of the week before. Net sales were positive at 18,000 bales as cancellations totaled only 20,100 bales as compared to more than 138,000 bales canceled the prior week. Keep in mind, we need current crop sales of 125, 300 bales to meet the current WASDE export estimate of 12.5 million bales.
Where to from here? The market will be anxiously awaiting the monthly WASDE report slated to be released Friday at 11:00 a.m. central time. This always creates fear in the hearts of mice and men. Though we expect little change in supply numbers, attention will be focused on whether they account for the demand destruction and revise world mill use. Barring any major revisions, look for prices to remain range bound, with firm support found at 77 cents and stiff resistance at 88 cents as it reacts to the news of the day. We still feel prices will trend higher but the timing of this is the big question, likely not until the new year. How high is another question that will be dictated by demand. Even so, for anyone selling 2022 cotton off recaps an excellent pricing opportunity would be when your basis and futures price gets you into the ninety-cent range.