The whole week the cotton trade was relatively calm, as prices fell slightly. However, Friday’s auction woke up the bulls again. The market has entered a phase of price consolidation and is trying to weaken above the 10-day moving average. The failure to hold 125 cents in March did not break the uptrend or the bulls.
Technically, a picture of indecision is drawn, as the market is at a crossroads in search of its way to continue the upward trend. The main factors of bullish on-call sales, rising inflation and competition for land in 2022 will keep half the prices of cotton.
Cotton prices, i.e. ICE futures are somewhat stiff down and flexible up. This means that support for prices in the March contract, which expires, at 119 cents and the contract for the new harvest in December at 101 cents looks very solid. The path of least resistance is higher.
The target price for the old crop remains 130 cents, and the new harvest in December is still estimated at 107 cents with a possible target price of 112 cents.
On-call sales are still very conducive to pricing, in fact every week more and more. However, the prospects for exports are a challenge to rising prices. Export sales are ahead of the schedule needed to meet the USDA’s export forecast of 14.75 million bales. However, export deliveries, as we have reported for some time, are lagging behind the pace needed to achieve this estimate.
In fact, exports of 3 million bales lag behind the pace a year ago. The USDA is gradually lowering its estimated export supply from 15 million bales in January to its current estimate in February of 14.75 million. Unfortunately, the final number will be 13.75-14.00 million bales. If happy deliveries could reach 14.25 million bales.
The situation with trucking combined with the commitment of US consumers to all of China is forcing boats to return from the US to China empty to quickly get another boat with goods destined for American consumers, regardless of whether goods were made or children made work, slave labor Xinjiang Province. The American consumer just wants to buy-buy-buy.
Customs seems to be doing a good job of weeding out goods and products directly using child and slave labor in Xinjiang. However, companies that appear to be cooperating with the Chinese Communist Party are still allowed to ship goods and / or sell such goods in China. Senator Rubio’s office mentions Nike as a company, and the business press includes Adidas, saying they are playing on both sides.
Ironically, yarn businesses tend to be able to keep profits and spinning at almost full capacity, while clothing sales are breaking records, and large retail stores have found a consumer who craves cotton – all of which as the cotton industry is experiencing great difficulties with the delivery of cotton to the yarn enterprise.
Some factories assume they will work 24/7 if they can get cotton, including all the plants left in the US. Shipping is not only a problem for the export market but also affects the domestic market. Now cotton consumption may not keep up with demand, but unfortunately delivery problems are likely to start limiting consumption later this year.
American factories, mostly located in the U.S. cotton belt, would use more cotton if they could get it. Add to this irony the fact that American cotton is one of the cheapest in the world, at a time when cotton prices are close to record high prices and exports from the US are severely limited because the country cannot deliver it.
Great demand for cotton, for US cotton. In fact, the market will support as much as 20 million bale crops. Some suggest the U.S. could support a 23 million bale harvest, perhaps, and so on. However, with such a large volume of production in the US, the American market would become even more attractive to the Chinese textile industry.
The cotton industry will be as much of a problem for supply chain problems as those now wreaking havoc in the US. Thus, without a strong and viable domestic textile industry, those who preach the production of cotton much more than 20 million bales, also indirectly advocate for cotton worth 65-75 cents. Yes, there are points to discuss, but always keep in mind the market price.
A cotton producer should be in demand, but a producer who survives in the long run will always be a low cost producer. The market could care less about any particular manufacturer. The manufacturer is instructed to learn how to produce on the market, not the other way around. Remember, the market is cold and very impersonal.
Brazil is knocking on doors, burning as many rainforests as possible to increase crop plantings. More importantly, they have become very aggressive in marketing all goods. They will increase cotton plantings and will fight for market share as their comparative price advantage can compete with the US
The bull market of oilseeds and cereals takes away some of the luster from cotton plantations. We expected that 13.0 million acres of cotton would be sown in the United States. The change in the price ratio indicates an estimate of 12.4-12.6 million acres. The cost of insurance for everyone except South Texas will be above one dollar per pound.
Introductory funds will be very expensive, but the same factor that caused the rise in raw material prices is also working to increase the bull market for cotton and other commodities.
Add another plus for the bull market, which may disappear overnight, drought. Drought is spreading in the southwest. The Coastal Bend region has had some relief, but other parts of southwestern cotton production are facing a more devastating drought than any in recent years. Every night I get a few letters about it. The world is watching.
The on-demand sales ratio is a bull in a porcelain store and doesn’t go away. Therefore, prices are falling sharply. However, Mother Nature now wakes up and winks every day. Speculators wink at her.
https://agfax.com/2022/02/18/cleveland-on-cotton-market-enters-consolidation-phase/ The market is entering a phase of consolidation – AgFax