ROSE ON COTTON
Posted : August 05, 2022

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ROSE ON COTTON – COTTON MARKET POSTS LARGE WEEKLY GAIN, SMALL MONTHLY SETBACK

Jul 31, 2022

Louis W. Rose IV and Barry B. Bean

Dec cotton gained 585 points on the week, finishing at 96.74, with the Dec – Mar inversion contracting to 323.  Dec posted at 210-point setback for July.  Last weekend, our proprietary models predicted a finish on the week that was to be near unchanged to higher Vs the previous week’s settlement, which proved to be correct.  

The cotton market moved higher on growing concerns surrounding a shrinking US crop.  Troubling economic data, formal recognition of the recession, US currency well above par (The Fed raised rates another ¾ point last week), and weakness in US export data for the period that covered Dec’s recent retreat to near 82.00 likely prevented the market from seriously challenging, or breaching, the $1 level.  Troubling data from major US retailers and credit card companies also likely further slowed ICE cotton.

Domestically, Plains Cotton Cooperative Association, which handles around one half of the West Texas crop is now estimating abandonment this season at around 50%. There is no rain in sight for the region, not that it will matter much by the end of the first week of Aug.  Most of the Mid-south received rainfall over the week, and it was sorely needed over the northern portion of the area.  The rains will help, but we believe we are off pace for average yields this season. Our crop consultants are telling us to expect losses of 100 lbs/acre under 5-year averages, assuming ideal weather from now til October.  The southeastern crop remains mostly strong, with its greatest threat the commencement of hurricane season.  We now expect US production this season will be under 15M bales.

For the week ending July 24, the US crop was rated in 34% good, or better, condition, off 4 percentage points Vs the previous week and 27 percentage points off this time last season.  The condition of the Texas crop is rated in 83% “fair”, or worse condition, with only2% earning a rating of “excellent”. Missouri and Oklahoma, have 0% of the crop rated in the “excellent” category. Missouri, in particular has traditionally been a source for long staple Middlings, but that looks very much in doubt, given the heat and drought stress this late planted crop has seen.  Last week’s rains across the Mid-south actually resulted in worsening crop condition ratings, most likely due to fruit shed.  A quick glance at the data easily shows that the Mid-south crop is not good even as the Texas crop (and much of the NM, OK, and KS crops) is worse.

Net export sales and shipments were lower Vs the previous assay period at approximately 4K and 254K RBs, respectively.  For 2022/23 sales were disappointing at less than 61K RBs. Shipments were well off the average weekly pace required to meet the USDA’s export projection.  The US is 113% committed and 92% shipped Vs the USDA’s export projection.  Cancellations were modest.  Currently, we expect US exports for 2021/22 to be close to 13.8M 480lb bales.  The US will need to ship 1.15M RBs over the next 1½ weeks to meet USDA’s target. 

The US ban on Xinjiang cotton is reportedly causing many issues for weavers and garment manufacturers in Southeast Asia as they are forced to identify yarns produced with cotton grown in China’s largest producing region.  We continue to have confidence that China will find a loophole to skirt this issue.  The Xinjiang region continues to be plagued by drought and heat. Elsewhere, some analysts have projected Indian production off 20% this season and consumption up 30%, which could turn the country from a net exporter to a net importer.

For the week ending July 26, the trade held its futures only net short position against all active contracts near unchanged at approximately 6M bales while large speculators trimmed their aggregate net long position to around 3.2M bales.  

For this week, the standard weekly technical analysis for and money flow into the Dec contract remains bearish, with the market remaining oversold.

Summer doldrums are never easy for producers, and this one is no exception. However, we are still confident that crop problems in the US, China, and India will continue to draw attention, and new stories or any hope of economic recovery should inspire moves to and through the dollar level. We continue to maintain GTC orders at $1.05 to bring our fixations to the 60-70% level but see the potential for harvest rallies.  Some other commentators have made arguments for major rallies next spring, but we will strongly encourage producers to participate in those rallies by means of a well-executed option strategy.    

Have a great week!

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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