Rose on Cotton – Cotton Market Continues to Surge on New Crop Supply Concerns, Chinese Buying

March 29, 2022 2:41 pm
Published by

Louis W. Rose IV and Barry B. Bean

ICE May cotton gained 904 points (500 on another Friday limit-up settlement) on the week to finish at 135.90, even as the May – July inversion weakened to 355.  Last weekend our models predicted a finish on the week that was to be near unchanged to higher Vs the previous Friday’s settlement, which proved to be correct.  The Dec contract picked up 650 points on the week, finishing at 111.74.  The cotton market has continued higher early this week.

The cotton market moved higher on the worsening drought across the West Texas region, less expected planted area Vs the USDA’s projection at Feb’s annual Ag Outlook Forum, strong US export sales and MY high shipments of almost 450K RBs, and large mill on-call commitments.  Overall, the West Texas drought continues to, perhaps, be the market’s largest concern.

Domestically, the drought across West Texas, Oklahoma, and Kansas continues to worsen; the current drought is worse than any, at this point of the year, since 2012, when West Texas produced almost no non-irrigated cotton.  The next major data release (outside of weekly reports) will be the USDA’s annual Planting Intentions Report, slated for release on Mar 31.  A Bloomberg survey shows an expectation for US cotton acreage to be projected at just south of 12.3M acres in this year’s Planting Intentions Report, and we think this is probably about right. 

USDA weekly classing data is down to a trickle, with the USDA’s 17.62M bales production estimate looking very close to correct.

US export sales for the week ending Mar 17 were lower while shipments were notably higher at approximately 311K and 449K (MY high for shipments) bales, respectively.  Shipments finally moved ahead of the average weekly pace required to realize the UDA’s 14.75M bale export projection.

Internationally, we are hearing reports and rumors regarding international mills (especially in China) are seriously curbing production as yarn sales slow and inventories increase.  Atrocities continue to be reported from the war in Ukraine; the US and NATO seem to be drifting closer to enhanced involvement, which would likely not be good for our market.

For the week ending Mar 22, significantly increased its futures only net short position against all active contracts to approximately 14.4M bales while large speculators notably increased their aggregate net long position to around 67.7M bales.

For thisweek, the standard weekly technical analysis for and money flow into the May contract remain supportive to bullish, with the market moving further into overbought territory.  The weekly release of US export data, weather reports, the Mar 31 acreage report, and geopolitical developments will likely be next week’s major influencing factors. Have a great week!

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    This post was written by Louis Rose