Cotton Market Weekly Masthead

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.

January 20, 2017

Cotton Futures Recover Somewhat from Previous Week’s Bearish News

 

Although the volume of contracts traded has been healthy, March cotton futures have spent the last week trading in a range of just 160 points. The low of the week was set Tuesday when futures fell to 71.81cents per pound, but price trends seem to have favored slow but steady gains since then. The number of open positions in cotton has fallen slightly, from 262,323 contracts to 259,328. Merchants seem to have begun moving their hedges forward to the May and July delivery futures markets.

Despite last week’s surprising crop report from USDA, speculators seem content to keep their bullish positions in cotton as evidenced by the merely modest decline in open futures positions. The World Agricultural Supply and Demand Estimates (WASDE) report revised up the U.S. ending stocks forecast by 200,000 bales to 5.0 million, which if it actually comes to pass, will be the highest leftover stocks that the U.S. has had in several years. In fact, the report’s January revisions increased ending stocks for every major cotton producing or consuming country, including China, which has seen better than expected yields in its largest cotton producing region.

Although the supply situation has improved, it seems that demand may be more robust than anyone expected at the start of this crop year. Today’s U.S. export sales report showed another 346,500 bales of net new upland sales to the export market, keeping us on pace to hit the new export target of 12.5 million bales which is up 300,000 from December’s estimate. The slow pace of Indian cotton arrivals is continuing to give U.S. cotton an edge in the export market and may allow the U.S. to take an even larger market share of foreign trade in cotton if problems there continue.

Another factor that has given speculative bulls confidence in this market is the large quantity of price fixations to which mills have committed themselves. Without a significant fall in prices, mills have continued to build one of the largest on-call positions ever, giving the speculators confidence that there are plenty of bids below current levels to keep prices from falling too sharply.

Merchants have been caught in the middle of this extended face-off between mill buyers and bullish speculators. Their main concern is that the premium on deferred contracts would cover their cost of carrying cotton, and for that reason we have seen the certificated stock (cotton readied for delivery against futures contracts) grow to 117,526 bales or 1,175 contracts. Delivering cotton against short futures is the merchant’s best recourse for forcing the futures price and physical price into alignment. So far, the strategy has worked, and the May and July contract are trading at decent premiums to March.

Traders are turning attention to next year’s crop as various organizations begin to assemble planting surveys. While most surveys are showing increased acreage for cotton, it is still far too early to tell what will happen in terms of price and weather three and four months down the road. Also, today’s inauguration is a good reminder that there are many policy shifts that affect markets with changing administrations. In particular, international trade is centrally important for U.S. agriculture, especially cotton. Policy risks deserve strong attention going forward.

In the spot market, producers sold 65,552 bales on The Seam’s online platform in the week ended Jan. 19. Daily average prices received ranged from 66.52 to 67.93 cents per pound. The average gross premium received was 14.42 cents per pound. Producers’ cotton listed in The Seam’s Firm Offer program at the end of the week exceeded 100,000 bales.

In the Week Ahead:

  • Watch the export sales report Thursday at 7:30 a.m. CST to see if export sales can maintain recent momentum.
  • The CFTC Cotton On-Call report to be released Thursday at 2:30 p.m. CST will be watched for indications of weakness/strength in mill customers’ resolve to hold-out for lower prices.
  • Friday at 2:30 p.m. CST, the CFTC’s   Commitments-of-Traders report will be watched for evidence of speculative buyers’ firmness to maintain their current net long position.

Friday, Jan. 13

Cotton futures at the Intercontinental Exchange (ICE) were on the defensive when the marketing week began. March cotton started the session on negative ground and fell to a low of 72.00 cents per pound. Light buying lifted the contract to a high of 72.75 cents, and it settled at 72.27, down 7 points.

Tuesday, Jan. 17

Following the three-day holiday weekend, cotton futures again traded in a narrow range and on both sides of unchanged. March cotton reached a high of 72.87 cents where it met resistance and turned lower. After falling to a low of 71.81, the contract settled at 72.11 cents, down 16 points.

Wednesday, Jan. 18

Futures continued to trade in a narrow, two-sided fashion at ICE, lacking any clear direction. Volume was the lowest of the month, and spreading accounted for approximately 59 percent of the turnover. March cotton traded in a 53-point range and settled at 72.26 cents, up 15 points.

Thursday, Jan. 19

ICE futures maintained their momentum with support possibly coming from gains in China’s futures market, firmer spot market prices in India, and mill fixations. March cotton moved to a high of 73.29 before light selling pressure moved it back to the middle of its 102-point range. The contract settled at 72.69 cents, up 43 points.

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.