The information contained herein is provided by Plains Cotton Cooperative Association (PCCA), a farmer-owned cotton marketing cooperative headquartered in Lubbock, Texas. It is for general informational purposes only and is obtained from sources believed to be reliable; however its accuracy and completeness is not guaranteed by PCCA, and PCCA offers no representations or warranties of any kind in providing this information. Nothing contained herein is intended, or should be construed, as advice or guidance for the marketing of cotton.
February 17, 2017
Cotton Futures Prices Fall as Volatility Resumes
Volatility made a grand re-appearance in the cotton market this week. Cotton futures spent most of the week falling from Monday’s highs where March cotton traded at 76.95 cents per pound. May and July futures made fresh multi-year highs on Monday, reaching 78.45 and 79.27 cents, respectively. With today’s sharp losses, March traded to a low of 73.02, 393 points off this week’s high. May and July futures also fell but not as sharply.
May and July delivery futures traded as low as 75.05 and 75.99, 340 and 328 points, respectively, off their Monday highs. December futures’ price action did not correlate very strongly with old-crop contracts. New crop cotton made a fresh high of 74.60 cents on Wednesday and again on Thursday despite the falling market. December futures also participated less in the decline, making a low of 73.05 today, just 155 points off the high.
Several factors contributed to the uneven pressure on the market. Perhaps the greatest pressure came from the continued position rolling pressure from Index funds. These funds hold very large, passive long positions in a broad basket of commodity futures which they move from nearby futures contract to the next contract at pre-stated times. The last of the Index fund rolling was thought to have been completed Wednesday which should have taken some of the relative pressure off nearby contracts.
Nevertheless, macroeconomic factors kept large institutional traders selling commodities in general. Among the many bits and pieces of information that moved the markets, Janet Yellen, chairwoman of the Federal Reserve, gave testimony which indicated she expected to continue raising interest rates this year. The comments were not totally unexpected, but they did turn market attention back to the U.S. dollar which appears to have resumed an upward trend. Secondly, the Federal Reserve also released a report at the end of this week which showed that household debt has returned to 2008 levels. This could be taken as a sign that people expect better times ahead, but the reference to 2008 put jitters in the market, and money managers began selling risky assets such as stocks and commodities in preference for the lower but safer return of bonds.
Returning to cotton fundamentals, demand for U.S. cotton remains strong as last week’s export sales beat market expectation by a good margin. U.S. shippers sold 222,200 bales for 2016-2017 delivery with Turkey (89,500), Mexico (25,500), Vietnam (23,800), Bangladesh (20,500), and Indonesia (18,200) being the major buyers. Sales for 2017-2018 delivery also were very strong at 123,300 bales. Featured buyers were Thailand (47,100), China (30,800), and Vietnam (20,100). Such strong sales despite higher prices is surprising, but relative to other international prices, U.S. cotton remains in a very competitive position. There are few other places for importers to find the same quantity and quality in the near term.
On the supply side of things, the cotton industry had its attention turned to new crop with news from the National Cotton Council’s (NCC) annual meeting. The NCC’s survey showed that U.S. farmers are likely to increase planted acreage 8.8 percent; however, with a return to average abandonment and yield, overall U.S. production is expected to decrease 200,000 bales to 16.7 million. The findings highlight the fact that anticipated planted acres do not mean much without a good planting rain.
It won’t be long before weather takes center stage. Prospects for good moisture during planting are likely to be considered bearish while a drought through April could push the market higher. For the time being, however, traders will be giving more attention to whether strong mill demand continues.
In the spot market, producers sold 48,516 bales on The Seam’s online trading platform in the week ended Feb. 16. Daily average prices received ranged from 70.94 to 72.26 cents per pound. Producers had approximately 18,000 bales of 2016 crop from Texas, Oklahoma and Kansas listed in firm offer at week’s end.
In the Week Ahead:
- The Export Sales Report will be released Friday at 7:30 a.m. CDT, a day later following the holiday on Monday.
- The CFTC Cotton On-Call report will be released Thursday at 2:30 p.m. CDT. Mills did a good job fixing cotton on this week’s report, and the next report will show if they took advantage of this dip.
- Friday at 2:30 p.m. CDT, the CFTC’s Commitments-of-Traders report will be released.
Friday, Feb. 10
Nearby futures contracts at the Intercontinental Exchange (ICE) settled higher for a third consecutive session. March cotton broke through the 75.00-cent support level, reaching a high of 76.23 cents per pound. The contract moved off its high but stayed in the plus column and settled at 75.82 cents, up 24 points.
Monday, Feb. 13
Futures were stronger following the weekend and the release of NCC’s planting intentions survey results. Spread trading continued, accounting for approximately 90 percent of the session’s volume. Also, May took over as the lead month at ICE and traded on positive ground all day, reaching a high of 78.45 cents, its highest level since July 2014. The contract settled at 78.21 cents, up 112 points and near the top of its 136-point range.
Tuesday, Feb. 14
Prices entered a correction phase following the recent run-up, and spread trading again accounted for almost 90 percent of ICE volume. May cotton struggled to find direction and traded on both sides of unchanged, settling at 77.95 cents, down 26 points. Traders were focused on the approach of March cotton’s first notice day on Feb. 22.
Wednesday, Feb. 15
Cotton futures settled mixed as liquidation of the March contract continued. May cotton also was under pressure all session, falling to a low of 77.28 cents. Before the close of trading, the contract regained some strength but remained in the lower half of its 109-point range, settling at 77.28 cents, down 67 points.
Thursday, Feb. 16
The correction continued for a third consecutive session, and May cotton again traded under pressure the entire day. The contract traded to a low of 76.76 cents in the final 30 minutes of the session and settled at 76.77, down 51 points.
Friday, Feb. 17
Futures lost additional ground as May cotton traded under pressure the entire session. Sellers were in firm control, and the contract fell to a low of 75.05 cents. May moved off its low but settled in the lower half of its 188-point range at 75.52 cents, down 125 points.