Cotton Marketing Planner
Department of Agricultural Economics, Texas A&M University
Cotton Marketing Summary for the Week Ending Friday, September 25, 2020
For the week ending Friday, September 25, the most active ICE Dec’20 cotton contract slid back into its familiar range of a bit under 65 to a bit over 66 cents. Prices trended lower Monday through Wednesday, and then bounced back Thursday and Friday (see graph above courtesy of Barchart.com). Friday’s settlement of 65.95 cents per pound was only 29 points above the previous Friday. Open interest (through September 25) followed a similarly sideways weekly pattern as prices.
The September 22 snapshot of Commitment of Traders data showed the index funds roughly the same net long position as last week. However, the hedge fund net long position increased by less than a thousand contracts from a few more new outright longs than new shorts. The U.S. dollar climbed this week, even as stock markets weakened, both influenced by concerns about a slowing economic recovery and expanding pandemic.
Fundamental factors this week included continued recovery in weekly crop condition ratings, cooler weather across the Cotton Belt, tropical rain from Tropical Storm Beta, and modest export net sales numbers (corresponding with last week’s 65-66 cent futures range). Commercial U.S. cotton demand remains reportedly slow (see here, pp. 2-5 for an oft-repeated official statement “The COVID-19 Pandemic continues to negatively affect cotton demand and disrupt supply chains.”). Certified stocks bounced back a bit. Chinese and world cotton prices were mixed through September 24.
In my opinion, the cotton market can’t avoid the long term bearish implications of USDA’s 2020/21 balance sheet. The longer term damage to cotton consumption by the COVOD-19 pandemic will surely take many months to resolve. In the near term, ICE cotton futures keep bouncing off the 65-66 level, on remaining production uncertainty, Chinese state buying, and unprecedented money flows in the financial sector, created by the Federal Reserve. There is also the possibility of commercial buying from Chinese mills in response to 1) newly available import quota, and 2) potential impacts from sanctioning cotton exports from Xinjiang. But all that remains to be seen.
I think that the normalization of cotton’s global supply chain and consumers’ willingness to buy more apparel may take a while. Hence a return to profitable market price levels may not happen during 2020. (I do see the possibility of higher prices for the ’21 crop, but partly for bad reasons like La Niña drought.)
From a marketing standpoint, both old crop and new crop cotton prices remain at the low level of the federal program price support. In government-speak, the adjusted world price (AWP) remains below the 52-cent loan rate. This makes for positive loan deficiency payment (LDP) rates for those who sell their cotton in the cash market (being careful to maintain beneficial interest).
For further analysis and discussion of near term price behavior, click on the menu above entitled “Near Term Influences”. Longer term price behavior is more influenced by fundamental supply and demand forces, which is discussed above under the “Market Fundamentals and Outlook” menu tab.