Cotton prices continue to be influenced by the overall negative tone of world economic health, altitude sickness that hit mill buying once the market hovered near 90 cents and the withdrawal of a large amount of speculative and fund monies that were so necessary to keep the commodity markets moving toward higher ground. Prices have fallen back to the 84-85 cent support level they had moved above six weeks ago. That support appears to be very strong, but as mentioned last week, another good level of support is near the 82 cent mark with rather massive support in the 78-79 cent area. The factors behind the current marketing year rally actually go back to October 2012 and continue to remain the dominant fundamentals in the market today.
The key factor – demand – is encompassed by unpredicted strength in world trade via massive imports by China, and much better than expected demand from Turkey, Asia, the Asian Subcontinent and even Mexico. Demand has worked its magic and pulled prices higher.
Recall as prices moved to establish a foothold at the 72-74 cent market in July-September 2012, and finally broke to the 77-78 cent level. The market kicked and pounded on the 78-79 cent door until its fists were all but bleeding before blasting right through 80 cents, making the big jump to 82 cents in January-February.
Then, it quickly kicked in the 85 cent door and made its run to 90 cents in March. Those that follow this report will recall that I have been somewhat wimpy of any price strength move much above 90 cents (being concerned that the demand door would begin to quickly close at that juncture). Yet, on every move higher, mills have sooner or later followed suit and chased the market higher. Just as we saw at lower prices the prices’ resistance levels broke every time and mills paid up.
Yet, the most recent rally to 90 cents caused mills to all but withdraw from the market. Since the late March run to 90 cents in New York futures, mills have not been able to increase yarn prices. Prior to the move to 90 cents, yarn prices had not resisted moves higher. That was the same time period that the financial markets expressed concerns surrounding world economies. That then caused speculative funds to take money out of all commodities and set in motion the current five-six cent drop in prices.
However, mills have stepped back in and are buying cotton now that New York has dropped. Net weekly export sales were 211,200 RB of Upland and 15,000 RB of Pima. Another 36,000 RB of Upland were sold for delivery in 2013/14. Weekly shipments of Pima were especially strong—a marketing year high—at 26,900 RB. Upland shipments were 396,100 RB. Most of these sales were made above 85 cents, but some as low as 83-84 cents. With New York holding the 84-85 cent support then export sales during the current week are again expected to be impressive and USDA, after just now raising their export estimate to 13.0 million bales, will now likely to face additional pressure to increase exports to 13.2 million.
China’s announcement that they began offering 2012 crop to mills just yesterday will likely be a deterrent to U.S. export sales into China. However, the government will offer only a limited volume of 2012 crop cotton – certainly not as much as Chinese mills would purchase. Thus, the announcement should not be seen as bearish, but rather that the Chinese government will continue to prop up world cotton prices.