Rose on Cotton – Cotton Market Slides for Fifth Consecutive Week

October 24, 2022 3:17 pm
Published by

Louis W. Rose IV and Barry B. Bean

The ICE Dec cotton gave up 402 points on the week (2581 over the last 5 weeks), finishing at 79.13, with the Dec – Mar inversion contracting to 58.  Last weekend, our proprietary models predicted a finish on the week that was to be near unchanged to lower Vs the previous week’s settlement, which proved to be correct.  Dec has commenced the new week lower.

Cotton pickers are running all across The Belt, ahead of expected rains this week.  While some fields have not yielded well across the Mid-south, many are reporting deceptively good yields, especially across the northern Delta where the crop was not expected to be terribly good.  The southeastern crop seems to be mostly good, while we all knew how poor the West Texas crop would be.

USDA cotton classing for the week ending Oct 20 expanded to around 2.3M RBs, with 82% of the crop tenderable and almost 65% eligible to be certificated without sampling.  Quality is much better than expected. Given the challenging growing season most growths had this year, seed breeders deserve thanks for the loan and spot premiums being offered to growers. 

For the week ending Oct 18, the trade noticeably reduced its futures only net short position against all active contracts to just above 5.M bales, which is not bearish.  Large speculators notably decreased their aggregate net long position to around 2M bales and continue to sell the market outright.

Producers who followed our marketing advice through the season have the majority of their crop forward contracted and priced. We advise delivering on these contracts as the harvest comes in, and reserving recap sales for later in the season, when the market is likely to return to the 80s and 90s. More bullish strategies may be exercised through the purchase of DEC 23 call options.  We believe that DEC 23 is likely to rally to buy 23 crop acres prior to planting and will almost certainly rally in summer 2023 if planted acres do not maintain or increase beyond 2022 levels.

The Dec contract is now approaching effectively finished, at least for the specs, so any sustained rally with have to be against Mar and contracts further out.

Have a great day!

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    This post was written by Louis Rose