After a bit of soul searching the first three days of the week, cotton prices bounced higher the final two days. However, the December contract finished 159 points off on the week. July was off just 111 points. Likely the December contract was hit, undeservingly so, by an announcement that West Texas production would be nearly 40 percent higher in 2013. The report was based on a “normal” moisture situation, phenomena that could still occur, but is now all but out of the picture.
Yet, rightfully so, a good solid rain during the current rainy period would be a huge benefit to the Texas cotton grower—the million dollar rain should it arrive by the first week in June. Mother Nature will control the market going into the planting season—and during the planting season.
The 84-85 cent support failed to hold, as I had expected it would. Yet, the stiffer 82 cent level did support and reverse the selloff. However, as cautioned a month or so ago, the 77-78 cent level offers a rock hard bottom that both (A) will not be beached and (B) will likely not be tested at all. That is, the 82 cent mark will be the low in the absence of any million dollar rain. If such does occur the 77-78 cent trading area will support the market.
Principally, the market moved lower as funds exited the market in mass and mills, standing back for lower prices, created a void of buyers. However, mills came back looking for cotton with the July contract at 84 cents. Korean mills were very aggressive buyers once July broke below 84 cents. Korea had priced the bulk of its cotton near 72 cents and below and had been absent the market since December. More so than any other country’s mills, those appear to be well ahead of others with respect to mill fixations. It was the Thursday and Friday mill buying that held the market above the 82 cent support level.
Export sales continue to chip away at the few available U.S. supplies. Net sales for the week, including Pima and Upland for 2013/14 delivery, were some 275,000 RB. Coupled with last week’s strong sales and this week’s early export business, another very promising sales report should be registered next week’s.
This is not the time for growers to fix cotton prices, but it is time for mills to fix the remainder of their needs for the 2013 calendar year. Growers should wait for a return above 86 cents, but specifically to look to add more sales on a return to 88 cents.