The market’s assault on December’s contract high of 89.28 continued last week with 90-cent cotton now squarely in the crosshairs. Support came by way of data confirming tighter cotton supplies and a growing economy poised to fuel demand. Trading within 75 points of the previous high, December futures closed Friday at 87.92 for a gain of nearly seven cents since mid-May.
If you feel like you are “behind” in your pricing/price protection and have been waiting for opportunity to get caught up, here you go. We mentioned a couple of weeks ago that prices (Dec futures) were most likely to range 78 to 86 cents depending on weather, demand and exports, and other factors. We have now moved to the upper side of that quicker than anticipated.
After momentarily touching limit down Monday morning, the cotton market did see an acceptable recovery rally. Unfortunately, December still closed with triple-digit losses. The market was upended when the Chicago grains collapsed initially over bearish weather forecasts, and then ethanol formula tweaks proposed by the Biden administration. Of course, to some degree, cotton was slightly overbought.
The ICE Dec cotton contract had another strong week, gaining 204 points to finish at 89.92, with the Dec – Mar spread now inverted at 19, which implies the market expects cotton to be worth less in the future. Last weekend, our proprietary model (timely results provided in our complete weekly report) predicted a finish that would be near unchanged to higher Vs the previous Friday’s settlement, which proved to be correct.