Market Still in Sideways Mode, Awaiting Latest USDA Reports

Sep 10, 2018
By Dr. O.A. Cleveland
 
Whipsaw price swings continue to haunt the cotton market. Such price swings, characterized by triple-digit day-to day-trading, will continue until the U.S. and world crop sizes are better defined.
 
Despite concerns surrounding the West Texas crop, it is difficult to go against the USDA objective yield survey. Until they change their estimate of crop size, it is questionable to challenge the USDA-NASS survey results. As we have mentioned in prior weeks, one should accept the greatly improved yields being spun off by the new seed varieties. The market is expecting a 19-plus million bale crop, and prices will continue to gyrate within the very narrow 81-84 cent price range until new fundamental information is uncovered.
 
U.S.-China and/or U.S.-Turkey relations are viewed as offering the greatest potential for price variation outside that narrow price range. Additionally, sooner or later, USDA must address its Indian carryover stocks dilemma. Yet, the price bias is lower given the state of the current trading situation with China and Turkey. The significant downturn in the Turkish economy (government intervention) has exacerbated trading problems and production in Turkey. Should the 81 cent price support level fail to hold, the 79 cent level should support to any sell off as world consumption continues at a record pace.
 
The Mid-South crop continues to lead the way in the U.S. and is set for a record yield. Likewise, the crop in the Southeastern region has progressed nicely and likely holds some yield surprises. If Texas performs similar to 2017, then harvested yield in the Southwest will hold up to initial estimates. Early harvest data from China suggests that crop weathered its poor early start and will harvest a better than expected crop.
 
Export inquiry has been excellent, but export sales lagged for the third consecutive week. However, early sales of 2018 crop were off to a record pace – thus, it is expected that USDA will maintain its export estimate of 15.5 million bales. Recall, forward sales made during the 2017-18 marketing season for 2018-19 delivery were at a record pace.
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