Cleveland On Cotton
Posted : February 25, 2020

Cleveland on Cotton: Time to Move Higher

January 3, 2020
By O.A. Cleveland, Consulting Economist, Cotton Experts

Cotton’s 2020 year begins with a bullish tone and with strong upside fundamental potential compared to 2019. The little bull has its legs and has demonstrated some flair with a current seven-month high in prices.

It is time to continue north to higher prices. Let’s review some of the Bullish and Bearish factors facing 2020. Granted, I will miss some.

Bullish

  • Nearby prices at 70 cent level after falling into the 50s.
  • The tendency of prices to move to 75 cents after a bearish year.
  • Increasing world consumption amid world economic rebirth.
  • Declining world carryover and declining U.S. carryover.
  • Declining world plantings and slightly lower world production.
  • Exceptionally robust U.S. economy and strong consumer spending.
  • Very active increase in speculative market purchases.
  • Bullish market technical projecting challenge of 75 cents.
  • On-Call sales (March/May/July) out distancing On-Call purchases.
  • Strong December cash sales, removing cotton from grower hands.
  • High yielding and increased lint quality from seed companies.
  • S. planted acreage falling 8-12%.
  • Export sales pace well exceeds USDA sales estimate of 16.5 million.
  • Tariff resolution favors increased exports to China/limits cancellations.

Bearish

  • Declining U.S. domestic mill use.
  • Market analyst’s perception that the U.S.-China tariff hurts U.S cotton.
  • S. acreage lower, but still near 12 million.
  • Weekly U.S. export shipments must average 385,000 bales to reach USDA projection.
  • S. carryover stocks still 4.8-5.3 million bales.
  • Unchallenged entry into U.S. of Chinese textile goods.
  • Chinese overproduction due to unchallenged heavily subsidized price paid to growers.
  • Potential for increased U.S export cancellations without tariff resolution.

The positive technical and fundamental factors favor higher prices as the factors indicate. Both old crop and new crop contracts favor a breach of 75 cents. Prices for both market years have to potential to move to 77 cents or above.

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