Trucking Issues Limiting Timely Cotton Movement

Feb 28, 2018

By Dr. O.A. Cleveland
 
Prices regrouped on the week, with the nearby May trading to 81 cents and the July contract eased up to 82 cents. World cotton consumptions continues to expand its wings, as growth is now evident and expected across all major continents.
 
Speaking of wings, those feeding me crow can now finish the pie. At least mine has morphed into Old Crow. Yes, it was scary for a couple of weeks. The market advance is back on track as prices again are trending higher. The short term trend is up, and the long term trend is strongly higher. The May and July contracts will again challenge the 85 cent mark, but price volatility will continue given the large imbalance between on-call sales and on-call purchases.
 
Additionally, strong export sales and shipments will continue into the 2018-19 marketing season. Given the potential for price volatility, mills may have at least one more opportunity to fix prices below 78 cents. Thus, growers should not expect an easy ride, again due to the aforementioned price volatility.
 
However, demand is exceeding expectations. As we have repeatedly stated, demand drives market price higher. The new crop December sits on an uptrend, and prices are well supported by demand. World consumption will further expand in the 2018-19 and 2019-20 marketing seasons.
 
New fundamentals must surface for the December 2018 futures to move above 78 cents. Yet, I would be remiss if I did not mention that USDA has projected 2018-19 prices to fall by 9%. That was surprising.
 
Both export sales and weekly shipments were well above 325,000 bales on the week. Net upland sales were 364,800 RB, and Pima sales were 2,800 RB. Upland sales for the 2018-19 marketing year were 131,000 bales. Turkey, Vietnam, China, Bangladesh and India led the parade of 19 countries that purchased U.S. cotton. China and India were notable, as some continue to suggest China is restricting their purchases of U.S. cotton.
 
India seems to surface every week, in some fashion. USDA has lost the confidence of Indian cotton traders due to USDA’s bias. India – sitting on a near-record carryover level according to USDA – continues to buy U.S. cotton to meet its domestic requirements.
 
Weekly shipments included 324,700 RB of upland and 17,800 RB of Pima. The primary destinations were Vietnam and China.
 
We have discussed the backlog record/near record of cotton that is cleared for export, but is waiting for shipment. U.S. merchants are no longer asking logistics companies for transportation costs, but rather, “Can you pick up my load?” Often, for now, the answer is no, and the export backlog will continue. Yet, there is a somewhat beneficial effect. Companies are scrambling to get cotton out of the High Plains of Texas, but are not finding available rail service or truck service.

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