By Jeff Thompson, Autauga Quality Cotton
Aside from Tuesday’s wild action, it was a rather non-eventful week of trading for cotton. The same, however, cannot be said for other markets. Corn, following a limit down day, fell 12 percent on the week. In topsy turvy trading, the red-hot equity markets saw all three indexes notching their worst daily drop since early June but closing the week to new highs.
Additionally, minutes from the recent Fed meeting gave strong indications their bond buying spree may be curtailed sooner than once thought. Also, there is growing anxiety over the strength of our economic recovery as the new Delta variant unleashes a surge of new Covid cases. If all this wasn’t enough, weather concerns are beginning to cast doubt on yield potential for all major commodities.
With so much outside noise happening, to have cotton prices gain 74 points on the week speaks volumes to its resiliency. On the heels of the previous week’s strong close, we awoke Tuesday to the market trading as high as 88.89 likely on word China’s auction of cotton reserves saw the 900,000 bales offered taken up at higher prices, indicative of the tight supplies now facing China.
It looked to be the trigger needed to break through resistance at 88-89 cents. But, just as with the previous seven breakout attempts over the past six months, it fell short again closing Friday at 87.71 in tempered trading.
Nonetheless, being able to withstand these challenges is testament strong fundamentals are still in play. Case in point, last week’s export sales were up 31 percent from the previous week with combined current and new crop sales totaling 234,500 bales. Better yet, shipments remained on pace with 314,000 bales sent abroad last week.
On the supply side, though Tropical Storm Elsa delivered only a glancing blow to the Southeast crop, rainfall was abundant throughout the Cotton Belt from Texas to the Carolinas. So much so, some are beginning to ask if this is too much of a good thing. It has certainly delayed much needed fieldwork in many locations.
The latest conditions report has 52 percent of the cotton crop rated good to excellent, unchanged from the prior two weeks. However, that rated poor increased to 10 percent from seven percent. Trying its best to catch up, the crop is still behind with 11 percent now setting bolls versus the four-year average of 13 percent.
This is concerning because much uncertainty surrounds a late crop being as there is little room for error and harvest delays can adversely affect yield and quality.
If you are reading this Monday morning, the July WASDE report will be issued in a few hours at 11:00 am CST. With a planted acre number in place, we will be watching for any adjustments to yield and consumption though little change is expected at this time. The spec community, who over the past few weeks have slowly increased their net long position, will be viewing these figures with interest.
In late May, when cotton was trading around 83 cents, their net long position was 4.85 million bales. By the end of June, it had grown to 6.45 million bales, moving prices five cents higher. Their support is needed to provide market momentum.
Where do we go from here? Absent a major purchase, a drastic change in crop conditions or, heaven forbid, an unforeseen world event, expect strong resistance to remain at 89 cents and solid support at 85 cents over the coming weeks. Those of you who tend to look beyond the present, keep a wary eye on December 22 futures which closed Friday at 79.37.
Do not overlook an opportunity to start pricing next year’s crop at these favorable levels. Choice Cotton is currently offering a 2022 contract with a competitive basis to anyone looking to do so. Call us at 334-365-3369 or reply to this e-mail for more details!