Rose on Cotton – ICE Cotton Finishes with a Second Consecutive Weekly Gain but is Moving Significantly Lower Since Sunday Evening’s Open

July 14, 2020 1:44 am
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Louis W. Rose IV and Barry B. Bean

The ICE Dec cotton contract gained 136 points for the week ending July 10 to finish at 64.31 as the Dec – Mar switch strengthened to (48).  Last weekend, our proprietary model (timely results provided in our complete weekly report) predicted a finish that would be near unchanged to higher Vs the previous Friday’s settlement, which proved to be correct.  Still, we did not recommend trading this bias ahead of the WASDE release.  Dec cotton is traded nearly 100 points lower on Monday and is off almost another 60 points this evening.

ICE cotton moved higher last week on lower projections of US and world aggregate carryout Vs June and continued extremely hot and dry conditions across West Texas.

In its July WASDE release, USDA reduced its projection of 2020/21 domestic carryout 1.2M bales Vs June at 6.8M, with production projected 2M bales off the June prognostication and exports off 1M bales at 15M.  World ending stocks were projected almost 2M bales lower Vs June, but they are still currently expected to be nearly 103M bales.  It was surprising (at least to us) that that USDA only slightly reduced its forecast of aggregate world consumption.

These figures are far from bullish, despite the reductions.  After all, how bullish can potential domestic and world carryout of 6.9M and almost 103M bales, respectively actually be?

Domestically, some rain occurred across northern West Texas, around Amarillo, over the weekend, but the areas daytime highs expected to continue to rival 110°F through Wednesday.  across most of the region.  Only portions of the Atlantic Coast growing regions are currently expected to see any significant rainfall this week.

Net export sales against 2019/20 were off significantly Vs the previous sales period (and quite disappointing) at approximately 48K RBs while shipments were higher at almost 337K RBs. The US is 120% committed and 91% shipped Vs the USDA’s projection. Shipments were just ahead of the pace required to realize the USDA’s target.  Nearly all net sales were (again) accounted for by China (and Vietnam), which continues to suggest no significant nearby demand for textiles. Sales against 2020/21 were notably lower at less than 7K RBs. Sales cancellations were negligible at approximately 6K RBs.

Internationally, it was a relatively slow week, but the Indian monsoon continues to progress, while China has remained its usual charming self by tersely responding to an invitation to arms talks with the US and Russia by relaying that they could not attend until the US reduces its nuclear arsenal to the level of that held by the central kingdom.

For the week ending July 7, the trade increased its aggregate futures only net short position against all active contracts to approximately 7.6M bales while large speculators increased their net long to almost 2M bales. These data are not suggestive of nearby demand for cotton.

For this week, the standard weekly technical analysis for the Dec contract remains bullish, with money flow continuing to turn supportive.  Weather reports, US export data, pandemic news and forecasts seem to hold the greatest potential for moving prices this week.

Have a great week!

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This post was written by Louis Rose