May 8, 2020
By O.A. Cleveland, Consulting Economist, Cotton Experts
The cotton market has that mid-August feeling that little, if anything, is occurring. That is, the market is in the doldrums. Certainly, the feeling is there and I am near guilty of believing such.
However, inquiries for export business occur every night and traders continue to ask about planting progress each and every day.
The entire production year is in front of us. Yet, we stay busy tracking mill openings and consumer demand for anything, much less apparel and textile goods. The lack of consumer demand and the business shutdown/slowdown around the world continues to control the daily news.
The market appears to have very few buyers. However, sellers are not in the forefront either. It is a market that appears to be afraid to go down, but the market isn’t willing to go up, either.
Maybe we can say that – given the consumer fears and the business slowdown – the market is in equilibrium. However, an equilibrium price should be near 70 cents.
Planting Season Promises No Huge Moves
It is certainly too early in the planting season for prices to go down. World plantings are declining and weather scares are in front of us. Yes, cotton supplies are more than ample. However, a quick return to normal spinning activity could bring supplies back in line.
I am not predicting that mill capacity will return to normal overnight, but over the course of four months mill activity could return to near normal. No, I do not expect that, but with world plantings on the decline, the supply/demand imbalance can be corrected in midseason.
Meanwhile, the market appears to be quite content trading near the 55 to 59 cent level.
It is simply just a bridge too far to expect December futures to climb above 60 cents in the midst of the planting season. Mother Nature can still bring us a perfect season for cotton. Or she can, as some are predicting, bring the U.S. cotton belt a very stormy season with an abnormally high numbers of hurricanes and unusual weather patterns across the globe.
So, the 55.50 to 59.50 cent trading range appears in order.
Chinese Buying Adds Stability
China surfaces every day, both in the medical front regarding the coronavirus, in world trade discussions and in cotton relations with the world. Too, it is expected that both the U.S. and Brazil will continue to sell cotton to China.
China was a big buyer again this week and likely will be in the next two reports if reliable news materializes. China needs more cotton for its strategic reserve and will be in the market for more Brazilian and U.S. cotton.
Its strategic reserve is just too low and is dreadfully low should China suffer a productions setback. U.S. net weekly sales for the week ending April 30, were 428,600 bales.
Net sales included 370,300 of Upland, 2,2,400 bales of Pima and 55,900 bales of Upland for the 2020-21 season.
Chinese buying has stabilized the market. Additionally, cotton has tended to respond to either ICE or Chinese market technical patterns. The market has responded to a series of ill-defined head-and-shoulder formations as well as bottom indicators.
A potentially bearish head-and-shoulder pattern seems to be taking shape in the ICE charts, but it is very ill-defined. We continue, in the intermediate term, to expect the market to hold in the 55.50 to 59.50 cent range.
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