By Jeff Thompson, Autauga Quality Cotton Association
One thing for certain, this market is nothing short of resilient. It’s like one of those Weeble toys, it wobbles but it won’t fall down.
Over the past few weeks it’s shaken off tariff rumors, financial market woes and West Texas rain prospects to immediately recoup any one-day losses that occurred. The December contract has been knocking on the door of 80 cents for weeks now.
This ability to rebound time after time coupled with an impressive balance sheet leads one to believe a push through 80 cents is inevitable. Not surprisingly, this seems to be the sentiment of most market prognosticators. That in itself may be our greatest fear, for when everyone gets on the same side of the boat it often flips over.
Strengthening demand is the cornerstone supporting this market. Last week’s export sales are a good illustration as 312,000 bales were sold for 17/18 giving us total sales of 16.9 million bales for the current marketing year. In addition, 259, 300 bales were sold for 18/19 giving us total sales of 3.5 million bales for the next marketing year.
If we meet the USDA export estimate of 15 million bales, which currently we are on pace to do so, it’s conceivable we could begin the new marketing year with sales of 5.2 million bales already on the books. When you consider there is still 15 weeks remaining in this marketing year, whereby additional sales can be made, this number could become even greater.
Fueling this demand is the ever-apparent global desire to become more environmentally friendly. As an industry we must latch on to this movement, encourage this concept and promote the natural characteristics of cotton every chance we get in hopes of gaining additional market share.
Uncertainty – Particularly In Texas – Still Sits At The Table
Switching gears to the supply side of the equation, there remains a great deal of uncertainty. Though Texas has received some rainfall as of late and another weather system is expected later this week, it pales in comparison to what will be needed to make a crop. However, there is still time but it may be late June before we have a firm grasp on harvestable acres.
I’ve spent enough time in the Southwest to know conditions can change rapidly from bleak to promising, or vice versa. Therefore, a good Texas crop is still in the cards though a bumper crop will be a stretch. The market will keep a close eye on this region of the country as it could eventually be the catalyst to push prices beyond 80 cents.
Production hiccups of any kind anywhere could further squeeze already tight supplies providing fuel to a primed market.
The “Specs” Still Have The Upper Hand
Finally, no market conversation would be complete without mentioning the one wild card, the spec community. The tug of war between the mills and these guys is mostly unchanged.
- The specs still have the upper hand, adding to their net long position now at 8.4 million bales.
- The mills, on a wing and a prayer, are hoping for a repeat of last year when the funds exited the market in mass, providing them an opportunity to price their unfixed cotton, which today is approximately four million bales on call based July.
The situation is much different this year, though, compared to last. The December contract now poised to surpass 80 cents is in comparison to last year when it was feared huge supplies would plummet the market toward 60 cents. The improved fundamentals should entice specs to keep their long positions intact.
All this said, our recent sideways trading pattern can be expected to continue at least until the July contract nears expiration and the tug of war winner is determined, or as crop conditions in the Southwest are better known.
This gives those who have not priced any cotton a chance to do so on a portion of their crop, which we strongly recommend. If pricing some cotton at 80 cents is the worst mistake you make all year consider yourself very fortunate. However, considering we are on the crest of a market that has the potential to ignite. Holding on to some cotton wouldn’t be such a huge gamble, at least until we see how the next few weeks unfold.
Πηγή: Agfax