Rose on Cotton
Posted : August 07, 2020




The ICE Dec cotton contract gave up 184 points for the week ending July 24 to finish at 60.10, with Dec trading below 60.00 for the first time since June 30.  The Dec – Mar switch was near unchanged at (72).  Last weekend, our proprietary model (timely results provided in our complete weekly report) predicted a finish that would be near unchanged to lower Vs the previous Friday’s settlement, which proved to be correct.

ICE cotton moved lower on the week, despite weakening US currency and an overall improvement in the condition of the US crop, on expectations for more rainfall across West Texas and (especially) a notable uptick in US – China tensions.  President Trump’s statement that the Phase One agreement wasn’t a priority for him didn’t fuel any bullish sentiments.

For the week ending July 19, the US crop was rated at 47% good or better condition, three percentage points ahead of the previous week’s report, which was a shock to many (including us).  The percentage of the crop rated in poor to very poor condition decreased four percentage points as the subjective rating of the Texas crop improved notably.  Fruit-setting data continues to reflect the late condition of the Mid-south crop.

Rain and continued to occur across West Texas last week, but significant accumulation of rainfall has been spotty.  Areas that had been dry across the Mid-south, (especially the northern Delta) have received significant rainfall over the last two days.  Tropical storm Hanna may have inflicted some damage to the southern Texas crop.  Rain and showers are expected to occur across most of The Belt east of Arizona, but totals across West Texas, Oklahoma and Kansas are expected to be modest.

The latest export report was quite similar to the previous one.  Net export sales were higher (but still net negative) and shipments were lower for 2019/20 at approximately (2K) and 274K RBs, respectively.  The US is 119% committed and 94% shipped Vs the USDA’s 15.2M bale projection.  Shipments were well off the pace required to realize the USDA’s target.  Sales against 2020/21 were also disappointing at less than 11K RBs.  Sales cancellations were approximately 18K RBs.

Internationally, the most pertinent news was the US government’s closure of the Chinese consulate in Houston in response to espionage concerns.  Tensions were heightened by the US also taking Chinese scientists residing within the US into custody for allegedly attempting to steal US Covid-19 virus vaccine development data.  While we have been skeptical of a promising future in US – China relations, perhaps it is time we just come to terms with the fact that the world views of our two nations are diametrically opposed.

Here at home, we base our philosophy on a “bottom up” approach in which the individual and family are the primary units, allowing everyone to prosper according to their abilities and talents, thus producing a diverse and robust free market economy.  On the other hand, China’s approach is “top down” in which the nation (in reality, the Chinese Communist Party) is the integral focus.  So, maybe we should consider that a “this is just not going to work out” conversation is order as we begin trying to become the world’s residual supplier of many agricultural (and other) commodities.

In other international news the Bangladeshi Textile Mills Association is petitioning the International Cotton Association (ICA) for support in invoking force majeure clauses in contracts in response to the pandemic, and leniency in contract terms.  While the ICA has no authority to intercede on individual contract terms, the effort does highlight the poor state of consumption in a major spinning nation and raises fears of cancellations if the pandemic continues or worsens through the rest of the year.

Elsewhere, a noted increase in buying by mills in Pakistan has been noted.  Area committed to cotton in Turkey this season is off by as much as 35% Vs last season, according to some sources.  Such could be positive for US export business.  China continues to sell nearly all the cotton it offers at its daily reserve auction.

Producers should settle in for the summer doldrums. In the absence of dramatic improvements in the pandemic and/or a thaw in US/China trade relations, it is hard to see a scenario in which new crop opportunities exceed prices already protected by the CCC loan by more than a few cents.  We see no incentive to forward contract at current prices.

For the week ending July 21, the trade increased its aggregate futures only net short position against all active contracts to approximately 8.7M bales while large speculators increased their net long to almost 2.9M bales. These data are not suggestive of nearby demand for cotton.  With respect to specs, we expect their net long position has moved significantly lower since July 21.

For this week, the standard weekly technical analysis for the Dec contract remains supportive to bullish, with money flow now bearish.  Weather reports, US export data, pandemic news and US – China diplomatic relations seem to hold the greatest potential for moving prices next week.

Have a great week!

Report Courtesy: Rose Commodity Group

With well over 60 years combined experience in the commodity trade, the partners of the Rose Commodity Group offer a wealth of knowledge and perspective to their clients. With expertise and direct experience in agronomy, crop production, futures and options, spot trading, hedging, shipping, and insurance, the Rose Commodity Group approaches marketing and risk management from a comprehensive perspective. Rose Commodity Group is not directly affiliated with any other commodity firm; we are not commission futures brokers. Our strategies and advice are based entirely on our client’s specific needs and goals.


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Disclaimer: This publication is presented for informational purposes only.  While the information contained herein is believed to be accurate and factual, the possibility of error exists. Commodity trading is an inherently risky proposition and there is no guarantee that trades based on the information herein will result in profitable outcomes.

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