May 21, 2021
By O.A. Cleveland, Consulting Economist, Cotton Expert
More Backing than Filling! The cotton market is at least limping along. The 81-82 cent support level held, and prices are now fighting to get above the 85-cent level. The ceiling at 85 cents is likely noting but glass, but until we are there prices still must defend the 82-cent level.
As expressed, many times in numerous ways, the market will blow that glass away. World production prospects are declining, demand shows strength every week and world and U.S. stocks continue to decline. China must come to the market for quality cotton, whether it be Brazilian, U.S., Australian or whatever.
My expectation for higher prices is a scratchy record it has been played so many times. The fundamentals are there, but I am sure that all wish 88-90+ cent prediction would finally come to fruition. The very bullish price prediction is as entrenched as ever. The market must get past the July delivery, but the immediate concern is getting past the historical Memorial Day rain event, or the non-event.
The Southwest has received limited beneficial rains, but nothing widespread. Truly beneficial rains have been extremely spotty. Rain forecasts remain for the region but are currently forecast to remain spotty. Yet only another 10 days remain to hopefully see the needed moisture before abandonment occurs. Even if the region receives planting moisture, the lack of subsoil moisture will haunt yield potential all season. The areas with beneficial moisture will need additional moisture before the month is out.
The best and most beneficial rains have come along the Coastal Bend and upper Coastal Bend and much of those have created havoc due to flooding. The very northern portion of the High Plains has now received excellent moisture, but literally most all that acreage was switched to corn this year. Thus, this is just another high yielding area that was lost to cotton this year and is part of the reason U.S. yields and production will be under pressure all season.
Th cotton market has traded in symphony with the equity market as has the grain/oilseed complex. Growing U.S. inflation concerns have all but backed the FED in a corner and it has now conceded inflation “could be a concern sooner rather than it has long forecast. This has kept cotton somewhat under pressure, but in the long run inflation would allow for higher cotton and other commodity prices.
The immediate concern is the increased volatility in the equity and financial markets, i.e., the crypto-currency market has lost as much as 40-50 percent of its value. Thus, Wall Street’s volatility has temporary pressured both the equity and commodity markets.
Lower prices generated an increase in mill buying as net weekly export sales doubled the prior week’s sales and export shipments of Upland and Pima exceeded 350,000 bales. Mills were very active in fixing old crop prices but continue to delay pricing new crop. December futures held the 81-82 cent level and have moved back above 83 cents.
The next two weekly export sales reports should be very supportive to the market as merchants and cooperatives have been active sellers in the export market. China and Vietnam had good purchases on the week and overnight business in those two markets continues to be very active.
This activity will drag prices higher and breach the soft resistance at the 85-cent area.