The weakening demand fears related to the U.S.-China tariff dispute, as well as the resurgence in the world demand for Brazilian cotton, led the New York ICE contract lower all week.
Going into the weekly close, the December contract had lost 455 points on the week. In fact, the market was lower during 9 of the past 11 trading sessions and lost 681 points – essentially losing SEVEN cents since it became evident that the tariff dispute was far from settled. Most of this loss, if not all, was based on speculative selling, as speculators pushed the tariff news as very negative for cotton.
While the very short-run market reaction was expected to be bearish, the long-term expectation is that world prices will be stabilized at a higher level. We dogged growers as much as we could to price above 75 cents, and further stated that no marketing plan was safe with the tariff on the table. All of those forecasts, unfortunately, came to fruition.
Yet, a potential soft price resistance area at the 72.50 cent level totally collapsed. Excellent price support exists at 67 cents in the form of a double bottom. However, it gets scary below that, as the next solid support is all the way down to 55 cents.
Expect the market to work the upper 60s as it moves through the planting period. Mother Nature is delaying planting, but growers have enough equipment to get the crop planted on time.
The tariff debate will continue to draw attention. However, it should not.
First, as has been reported for nearly a year now, the Chinese have never honored trade agreements. It is just something they do not feel they have to do. It is that simple. Too, Chinese cotton growers are subsidized at the equivalent of about 142 cents per pound. That is, the U.S. grower can expect about 70-72 cents per pound, or only one half of what the Chinese grower gets for his cotton. Again, the Chinese grower sells his cotton to the Chinese government for some $1.42 a pound. The U.S. grower sells his cotton on the world market for about 70 cents per pound (if he is lucky – today it would be about 63 cents per pound). It should be clear that the entire cotton industry should unanimously support the U.S. tariff.
The U.S. grower has quietly accepted the Chinese double-dealing policy for the past three decades and has done nothing to limit its impact on the market. Nothing. Washington’s tariff challenge to the Chinese is the first attempt to establish fair trade in the world cotton market. Yet, that is only one battle the U.S. grower faces. The grower has also sat back on his laurels over these same 30 years and totally failed at any attempt to promote cotton consumption over that same time period.
If the U.S. grower has any interest in obtaining a better price for his cotton, he will have to begin to exhibit some desire to promote cotton in the textile chain. The list of international brands and retailers that say they do not even consider using cotton grows almost every week. To date, as cotton’s share of the fiber market slips further and further, the cotton industry has not had any successful program to encourage brands and retailers to return to cotton.
Finally, USDA released its May world supply demand report at week’s end. The report was very much as had been expected by the market and, as such, was price neutral. USDA finally reduced the 2018-19 Indian crop by 1.5 million bales, dropping it to 25.5 million (after raising it last month). Even with that major reduction and a reduction in the 2018 U.S. crop, world ending stocks as of July 31, 2019 were increased some 300,000 bales to 76.5 million bales. However, the reduction in the Indian crop offset the somewhat bearishness of an expected 2019 U.S. crop of 22 million bales, or some 4.3 million bales larger than the 2018 U.S. crop.
World production for 2019 was forecast at 125.5 million bales – 6.5 million bales more than in 2018. World consumption was forecast at 125.9 million bales – 3.2 million bales larger than in 2018. Thus, world ending stocks in July 2020 are expected to fall some 400,000 bales during the 2019-20 marketing year.
While this could possibly be mildly bullish for cotton prices, the fact that increased carryover in world exporting countries suggests there will be considerable competition for available export markets and keep prices in the 10-cent trading range between 65 and 75 cents.
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Πηγή: Cotton Grower