Rose on Cotton
Posted : July 10, 2020

ROSE ON COTTON – JULY COTTON FINISHES NEAR UNCHANGED ON WEEK AND MONTH, US PLANTED AREA SHOULD PROVE SIGNIFICANTLY LOWER VS USDA PROJECTION

31-May-2020

LOUIS W. ROSE IV AND BARRY B. BEAN

ICE July cotton finished near unchanged for the abbreviated trading week, giving up 2 points to finish at 57.59.  The July contract picked up 26 points for the month of May.  Dec lost 33 on the week at 57.48, as the July – Dec switch strengthened to an inversion of 11 points.  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, however, we again overrode our model’s prediction, instead recommending a short position, especially near 59.50.

ICE cotton futures moved lower on weakening US export sales, bearish US economic data, and the market’s technical structure. The failure of forecasted rains across West Texas, tropical storm Betha’s landfall over Atlantic coast, increased tensions between the US and China, a heavy spec net short positions against July, and weakening US currency likely combined to prevent July form crashing.  An additional 2.13M Americans joined the ranks of the unemployed for the week ending May 22, but continuing claims were off by almost 4M, which is a sign that Americans are returning to work.  And, such is encouraging.

The USDA estimated planting of the 2020 US cotton crop at 53% complete for the week ending May 24, up 9 percentage points Vs the previous week.  Planting progress is on par with the rolling 5-year average pace, despite slow progress across the Mid-south.  With respect to this region, Arkansas, Missouri, and Tennessee are lagging far behind with the optimal planting window having closed pm May 20.  Missouri is estimated at only 30% complete, and we are expecting a large acreage cut for the state – and the entire northern one half of the Mid-south - to be evident in the USDA’s annual late June acreage report.

West Texas mostly missed anticipated rains over the Memorial Day weekend, with only slight chances for precipitation in the next 10 days.  In fact, most of The Belt is expected to see only light precipitation this week. Tropical storm Betha made landfall along the coast of South Carolina last week and dumped significant rainfall across cotton producing regions of the state, along with cotton producing regions within North Carolina and Virginia.  This area was already well off its average sowing pace and, with final planting dates having been reached, we must consider lost acreage in this area as well.  The Atlantic coast region, combined with the the Mid-south, now will likely account for significantly lower planted area Vs the USDA’s Mar 31 projection.

Net export sales against 2019/20 were notably lower Vs the previous sales period while shipments were modestly higher at approximately 55K and 268K RBs, respectively.  The US is 116% committed and 79% shipped Vs the USDA’s export projection.  Sales were again well ahead of the average weekly pace required to meet the USDA’s export target while shipments were only 86% of the pace requirement.  Sales against 2020/21 were higher at approximately 172K RBs.  Sales cancellations were large at around 66K.  China and Vietnam accounted for most new sales for the period.

Internationally, harvest is about to commence across Brazil. Despite expectations of a large crop, spot prices in the nation are strengthening.  Elsewhere, weakening Indian currency could threaten US export sales.

For the week ending May 26, the trade significantly trimmed its aggregate futures only net short position against all active contracts to approximately 4.72M bales while large speculators reduced their aggregate net short position to less than 812K bales.

For an in-depth analysis of CFTC data see our weekly CFTC analysis and commentary.

For this week, the standard weekly technical analysis for and money flow into the July contract remain bearish.  Planting progress, weather reports (especially for West Texas), US export sales data, pandemic updates, and news regarding US – China relations likely each possess market moving potential this week.  Index fund rolling continues this week with the Rogers roll culminating on Monday and the Goldman roll commencing on Friday.

The spot market is showing every sign of entering the summer doldrums early. For the reasons mentioned above, combined with dramatically reduced consumption, it is hard to see good news for producers holding cotton prior to late 2020, if not early 2021. We continue to encourage producers to sell old crop, and bank bullish sentiments in March or May 2021 call options.

New crop likely has more potential to rally sooner, given the forward-looking nature of speculators, and continues to tell producers to hold off on forward contracting.  Given CCC loan support in the 50s, we see little incentive to forward contract cotton for prices that are likely to be near the year’s lowest. Conservative marketers can look to insurance and put strategies to strengthen the floor under current prices.

Have a great weekend!

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.

 

To learn more about Rose Commodity Group please

visit: https://www.rosecommoditygroup.com/about/

 

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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