For the week ending Friday January 20, 2017, nearby Mar’17 ICE cotton cycled up and down in a gradual upward trend. Mar’17 and Dec’17 futures settled on Friday January 20 at 73.04 and 71.19 cents per pound, respectively. A 70 cent call option on Jul’17 settled on Friday January 20 at 6.06 cents per pound , while a 76 call was worth 3.01 cents. From a new crop perspective, a 70 cent put option on Dec’17 settled at 3.87 cents per pound, while a 63 put on the same contract cost 1.39 cents. Chinese cotton prices and the A-Index of world prices were mixed over this week.
Other cotton specific news included strong export sales bookings, in keeping with the expected price quantity demand relationship. Another very high hedge fund net long position was in play as of January 17.
Current marketing strategies to consider might include combining one’s sold (or committed) 2016 crop with call options on Jul’17 ICE cotton. For example, while a 70 cent July call is still expensive at a little over six cents per pound, a 70:76 July call spread would cost half that. A relevant strategy to look at for the 2017 crop could involve buying a 70:63 put spread on Dec’17 futures, which cost 2.48 cents on Friday January 20. I have also heard of growers in West Texas taking advantage of favorable basis terms to forward contract a few 2017 bales. That is something to consider for some reliable and/or insured portion of your expected production. In any case, growers should be poised and ready to quickly take advantage of new crop price rallies, especially if they are mostly driven by short-lived speculative buying or mill fixing.