May 28, 2021
By O.A. Cleveland, Consulting Economist, Cotton Expert
I suppose the performance of the cotton market seems like a commercial for a very bad beer. Prices are stuck in an 83-cent rut. The price support level of 81-83 cents has proven to be as solid as a rock and price activity has been simply waiting to see if any widespread moisture would bless the Texas Plains cotton acreage.
Not only has the moisture skirted most of that area, but the vast dryland region south and east of Lubbock has not received widespread or beneficial rain. The first week of June is just days away and the critical need for rain is here, now. It is now or never.
When the market opens Tuesday (Monday night) after the Memorial Day celebration the cotton market will begin its move higher in the absence of a last-minute miracle rain event over the Texas High Plains and Rolling Plains. For the first time in many years the odds of a rain event are not good, and time has all but run out.
Other factors than increase the probability of higher prices include a smaller crop in China due to significant weather problems. A recent statement by Cotton Outlook offered that the Chinese crop could be down as much as 10%. Pakistan will plant less cotton in favor of edible beans. The same is true for India, but USDA still estimates the 2021 Indian crop will see an increase over the 2020 production.
The ever-increasing food prices in India, coupled with the country’s battle with the Chinese coronavirus, and the increased cost of inputs is the root cause of a reduction in Indian production. While U.S. production is expected to increase over the 2020 crop year, the increase will likely be very small. Coupled with declining U.S. stocks and the significantly stronger textile demand, world carryover could fall as much as 7-10 million bales during the 2021-22 marketing year.
Yet, for now we all must continue to focus of salvaging a drought reduced U.S. crop and a measurable reduction in yield per acre. The expected yield loss is associated not only with the drought stress, but also the unexpected loss of high yielding “cotton land” planted to grain and oilseeds.
U.S. export sales continue to blossom. Net sales for the week ending 5-20-2021 totaled 171,200 bales of Upland and 12,700 bales of Pima. Seasonably, one might expect net sales of only 50,000-60,000 bales. Thus, demand continues to be as good as forecast and maybe better.
Sales to Turkey, China, Pakistan, and Vietnam led the way. Cancellations were almost nil. Shipments were even more impressive as Upland exports were 323,500 bales and Pima exports were 17,500 bales. Of equal importance for the bulls, 2021-22 export sales finally had a very strong week with 92,400 bales sold.
The new crop December futures contract will continue to tread water into the second week of June. By then the market should have a good reading and understanding as to plant growth prospects in the drought parched Southwest. The normal hot winds blowing across the Texas plains will be even more problematic for cotton this year as the drought is reducing both acreage and yield.
December will likely begin its serious challenge of the 85-86 cent price resistance level by mid-June.