Rose on Cotton – Cotton Market Finishes Week Lower Despite Tight Domestic Balance Sheet

November 13, 2023 3:41 pm
Published by

Louis W. Rose IV and Barry B. Bean

Dec cotton futures had another down week, losing 230 points to finish at 77.32, with the Dec – Mar spread tightening to (218).  Last week, our models predicted a finish on the week that was to be near-unchanged to higher Vs the previous week’s finish, which proved to be incorrect; however, we did not recommend any bias due to last week’s WASDE release.  Mar is now the lead month and we will switch our analyses accordingly.

ICE cotton finished the week lower despite very strong US export business on index fund rolling, strength in US currency, the war in Israel, and a Nov WASDE that fell short of bullish expectations.  Ultimately, the fact that demand for US cotton outside of China and Vietnam remains very slow carried the day.

In the Nov WASDE report, USDA increased its US production estimate almost 300K bales to 13.09M while domestic consumption was estimated 100K bales lower at a mere 2.05M bales.  Expected exports were unchanged at 12.2M bales and expected carryout was increased 400K bales to 3.2M.  None of these domestic numbers, other than the consumption estimate, are bearish per se – and they are certainly not bearish at current market prices.

At the world aggregate level, expected production was increased 860K bales to 113.46M bales while consumption was debited almost 500K bales at 115.3M.  Expected carryout was increased 1.58M bales to 81.5M.  While these are not bullish figures, they are much more bullish than when the market approached 90.00 over recent months.

There is a lot of cotton to be harvested across portions of The Belt, and producers in many areas will begin dodging showers in the coming week.  This morning’s forecast shows rain in Louisiana and Texas.  Weather in November can get dicey.  However, the Mid-south crop is all but off the stalk.  I drove down through middle Mississippi late last week and I saw not one field that was yet to be harvested.  On the whole, this has been one of the most benign harvest seasons that we can recall for our region, and classing reports reflect this.

For the week ending Nov 2, US export sales and shipments against the current MY were approximately 416K and 95K RBs, respectively; total sales were around 460K RBs. China and Vietnam again accounted for the vast majority of offtake while shipments continue to be hindered by a low Mississippi River and restrictions in the Panama Canal.

Internationally, a second source in India has estimated this season’s production off around 7% Vs last season on pest infestations and insufficient monsoon rains across many locales.

For the week ending Nov 7, CFTC commitments of traders data will not be released until Monday, Nov 13 due to the Veteran’s Day holiday.  Still, we would not be surprised to see that the aggregate spec long position has been pared to around even.

The standard weekly technical analysis for and money flow into the Mar contract remains bearish with the market extremely oversold.  US export data, and index fund rolling, and market technical factors seem likely to be this week’s major market factors.

Our current targets for producer sales have lowered substantially. We advise producers who have not yet priced cotton to consider pricing a percentage of their cotton at or above the 80-cent level, and we will consider futures at or above the mid-80s to be a full sell signal.

With that said, we see strong potential in the Dec24 option pit. Trading around 77 cents this morning, we see 5-10 cents potential in ordinary seasonal fluctuations and are buying bull call spreads on our own account.  

Have a great week!

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    This post was written by Louis Rose