By O.A. Cleveland, Consulting Economist, Cotton Experts
This is one of those times when the market begs for some direction – where to go and precisely how to get there. Simply put, the market is quiet.
We saw some changes in the supply side of the price equation this week, but they tended to be offsetting. Yet, the market continues to maintain its sleepy look. Thus, for now our old adage, “Never sell a sleepy market.” is the feature that rules the thinking.
As much as I want to price at 65 cents, I continue to believe it is prudent to hold. Yet, I do note the market was down 26 points on the week. The 61-66 cent trading range is still holding firm. It likely will hold through another USDA world supply-demand report.
I do feel that one should begin scaling up pricing at the upper end of this range.
History tells us not to sell a sleepy market, but it also tells us that the longer a trading range lasts without breaking into a new higher range, the greater the likelihood that prices will move lower.
Two Years Of Trade Roadblocks
The big fundamental — Government — is likely providing solid support just above 64 cents and is the primary reason some predict that the market is headed to a new higher trading range. Yet, while “official” announcements appear to suggest progress in resolving differences with China, the same precise nearly two-year old roadblocks to a resolution continue to shine through all comments about any resolution.
I hear some talking about price resistance near 77 cents. Granted, they mention multiple layers below that level. Yet, it is mostly unreasonable to even mention 77 cents. I think they are looney. Hopefully, though, they will be correct.
Other fundamentals appear to be set for now.
The Southeast and MidSouth are in fact harvesting the crop predicted by USDA and quality has been very good. That may change after this week’s showers.
Initial grades in Southwest were excellent, but weather will likely change that somewhat. The West is another location with yields and quality achieving projected estimates.
The demand side of fundamentals remain somewhat weakened by the world economy and the fact that exporting countries have an overabundance of supply. This is working to keep prices under pressure. Any changes in the supply demand situation have generally been offsetting, i.e., a smaller Chinese crop and a larger Indian crop.
As mentioned last week, a very heavy level of selling pressure lies just below 66 cents. That is why December futures falterer so quickly on any challenge of 66 cents.
Growers and cooperatives have been heavy sellers on moves above 65 cents. Also noted last week, a virtual wall of selling will kick in above 65.90 cents. Quite likely, the current five cent, 61-66 cents trading range will remain.
Export Sales Slip, China Ignores U.S. Bales
U.S. export sales and shipments were very weak during the week. Net Upland sales were near 143,000 bales while Upland shipments were only some 148,000 bales. China remained out of the market for U.S. growths.
Pakistan and Vietnam remained the major buyers. The market has very high hopes that China will come to the U.S. looking for significant purchases. Again, I hope that will be the case, although I don’t sense any particular need by the Chinese to purchase U.S. growths this year. Exceptions might be very high grades or some very, very low grades, like 35-40 cent loan value cotton.
That said, I continue to note that the Chinese crop is less than the USDA estimate…and the adage of never selling a quiet market.
Repeating from last week, more aggressive growers should consider scaling up their selling at 65.49 cents. In case a trade settlement rolls out, be prepared to act decisively. The market adage of “buy the rumor, sell the fact,” will likely prevail.