Cotton Marketing Planner
Department of Agricultural Economics, Texas A&M University
Cotton Market Update for the Week Ending Friday, July 10, 2020
The week ending July 10 saw most active ICE cotton futures continue to stair-step upward, leveling off over 64 cents (see graph above courtesy of Barchart.com). Chinese cotton prices also trended slightly higher this week, while world cash prices were were mixed/flat over the same period.
Fundamental influences this week included continued heat/dryness in the Southern Plains, plus neutral/bullish adjustments to otherwise bearish USDA balance sheet numbers in Friday’s WASDE report. Thursday saw weak (not unusual) old crop and ok new crop U.S. export sales. Certified stocks remained near their recent highs, reflecting a continued weak state of commercial demand, which remains reportedly slow outside of a handful of buyers in China and Vietnam.
Technical influences were likely a factor in this week’s low-moderate volume trading as Dec’20 futures settled above it’s 200-day moving average. Speculative short covering and new buying is also reflected in the Commitment of Traders data.
Ultimately, the market can’t avoid the bearish implications of USDA’s old crop balance sheet and the negative spillover effects for the 2020/21 situation. The June and July WASDE numbers reinforced the previous two month’s projections of lower consumption and higher ending stocks. Recent indicators of reduced demand include a 79% decline in U.S. clothing store retail sales in April, and a correspondingly large decline in estimated consumer spending on apparel. Even May’s recovery of U.S. clothing retail sales is still below normal levels, so we’ll have to see.
The longer term damage to cotton consumption by the COVOD-19 pandemic will surely take many months to resolve. If there was a near term medical quick fix to the spread and effects of COVID-19, I would expect only a partial relief in commodity and equity markets. The “fear and panic” portion of the decline in cotton prices might keep ICE futures over 60 cents, perhaps reaching the mid-60s or higher. But the repairs to cotton’s global supply chain and consumers’ willingness to buy apparel may take longer to normalize. Hence a return to profitable market price levels may not happen during 2020.
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). So the worst having happened (knock on wood), there isn’t much sense in paying for more downside price protection.
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.