The dominant feature in the cotton market, as it is in all financial markets, remains concerns surrounding the coronavirus. Yet, cotton has shown signs of responding to the traditional fundamentals associated with the market.
The March, May and July contracts all closed higher on the week, as did the new crop December contract. Too, cotton held much stronger on the week than its commodity cousins soybeans and corn. Exports continue to hold the market’s attention as both sales and shipments remain on the pace needed if USDA projections are to be met. Most are concerned if the export objective of 16.5 million bales will be met. However, the pace is holding, although just barely.
Cotton prices attempted a rally on the week, and both the old crop July and new crop December did spend more than two days trading above 70 cents. The market was able to poke its head above price resistance levels. While 70 cent daily closes were established on consecutive days, the market could not keep that level for the weekly close. Nevertheless, both export sales/shipments, as well as thoughts about March delivery notices, kept prices hovering at the 70-cent mark. The market should continue to maintain its three cent 68.50 to 71.50 trading range, and I continue to expect an upward bias.
Delivery notices on March futures contract were issued after Friday’s close, and all notices were stopped by Allenberg – an indication that the world is scrambling to find quality cotton. Thus, U.S. quality should command a premium, and that premium should expand as the winter and early spring months play out. Too, this was reflected in that the expiring March contract was up over 150 points on the week. Additionally, it is a clear indication that Allenberg owns all or nearly all of the expiring long contracts in March. This should continue into the July contract.
The past month has been exceptional for U.S. cotton export sales and shipments as well. Net sales of upland on the week were 235,300 bales. Pima sales were 9,500 bales and marketing year 2020-21 sales were 141,200 bales – again, an exceptional week. Primary buyers were Vietnam, Pakistan, Turkey, South Korea and Indonesia. Total shipments were 375,000 bales of upland and 10,200 bales of Pima. This was marginally short of the weekly average required to reach the USDA estimate for the year.
Strong sales to Pakistan have helped push U.S. total sales higher almost every week, and these weekly sales continue. China continues to be an active buyer each week, but some Chinese textile mills remain shuttered due to the coronavirus.
Additionally, of concern is that mills are advertising in an attempt to get new temporary employees to come work in shuttered mills located in the virus afflicted areas. These mills remain closed, and there is growing concern by those mills of losing export business. This is a further indication of the market uncertainty surrounding the virus and its potential impact on the world’s cotton economy.
The trading range 68.50 to 70.50 cents will continue with attempts to move 100-200 points higher.
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Dr. O.A. Cleveland is professor emeritus, Agricultural Economics at Mississippi State University.
Πηγή: Cotton Grower