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• Long range weather patterns are suggesting that West Texas and the Southwest will remain dry, says O. A. Cleveland, Jr., and “some of that drought is going to ease over into the Delta area and move on eastward across the entire Cotton Belt,” which will have an influence on the market in months ahead.
• China's rebuilding of its strategic cotton reserve and reduced cotton plantings worldwide will also play a role in where the market goes, says the Mississippi State University Extension economist emeritus.
Sees terrific demand
“I think all this is telling us there is terrific demand out there — we’ve just got to try and find a price that will move the cotton, and it looks like 94 cents may be the point at which mills will jump all over it.
“I think we have to believe that there’s strong demand for cotton; it just hasn’t been there at $1.05 or $1.08. But now that we’ve seen all this movement below 94 cents, I think the mills will be a little friendlier toward coming back into the market. We saw that in the export sales report last week, when the mills were buying cotton for immediate delivery.”
Earlier in the year, Cleveland says, “We thought China would buy about 16 million bales of cotton, but they’ve already bought about 14 million to 15 million, and they’ve just opened a quota for another 3 million.
“So, the signals to the market indicate that there will be at least 18 million bales sold to China, and some think the figure could go as high as 25 million. That’s a little high, admittedly, but we can make an argument for it, and that would send the market somewhat higher.”
Cleveland says, “We need to understand that it took only one season to get into an excess supply situation; conversely, it would take only one season to go the other way to a tight supply. We’re certainly set up to go the other way with the drought expectations here in the U.S. and the anticipated 10 percent to 15 percent acreage reduction around the world. We could cure the excess supply situation in one season or less.”
The long term technical picture for cotton “has been somewhat bearish,” he says, “but in the last three weeks we’ve seen very large amounts of speculative money come back into the cotton market — and the market as been up, up, up.
“These huge funds are not coming into cotton looking for a penny, or two cents or four cents; they’re looking for 10 cents or 20 cents — moves that could take the market to $1.10 or $1.20.
“Several technical analysts now have positions suggesting that the market is now pointing to $1.18-$1.20, basis May/July. They are anticipating that we’ll have higher prices, based on the outlook for lower acreage here in the U.S. and worldwide.
“The funds are operating on the theory that perception is reality, and they think the charts are clearly suggesting that the price will move to $1.20. Some of the Elliott Wave theorists are looking for $1.18 on the May/July contract.”
Cleveland says he’s “somewhat optimistic about cotton in the short term, more optimistic in the long term.