The past few days have proven how vulnerable and uncertain this cotton market is. Expect more of the same as we now move forward into the growing season. This sudden downturn may be too much too quickly and, thus, due for a “correction” but this proves how rapidly the tables can turn.
Producers with a fair portion of expected 2014 production priced on the uptrend from 80 to near 85 cents are feeling pretty fortunate right now. Similar opportunities may present themselves again; be patient but be ready.
Prices (Dec14 futures) peaked at 84.53 cents/lb May 5. Prices began to show weakness on May 8 when Dec14 closed at 83.51. Prices have now declined approximately 8 percent since the peak—with the majority of the damage coming last Thursday, last Friday and Monday. Three straight days of triple-digit losses have the market closing at 77.86 cents/lb May 2 7—crashing through what seemed like good support at around 80 cents.
U.S. weekly export sales have been good both for old crop and new crop. Export commitments for the 2014 crop year that begin August 1 are currently at about 20 percent of USDA’s forecast. Good export news, however, has not been sufficient to offset other factors that have driven the market sharply lower.
Dec14 has moved lower primarily on weather considerations, selling by speculative interests, and on technical chart considerations. What does this mean? It means that the 85-cent area is likely now, more than before, more fully established as the near term top of the likely trading range. It means that some in the market were nervous with prices approaching 85 cents in the first place.
The support near 80 cents has been broken. Prices plowed through 80 cents without a blink. That was a little surprising. But, this may also lead to a “correction” back up to that level. That will be the next target if prices begin to improve. Continued negativity takes us to 77 to 76.
The market will be erratic and uncertain. There is a long way to go. If you feel you are too unprotected at this point, use a move back to 80+ to get caught up. If you are comfortable where you are, be happy and make sure you have a pretty good handle on yield potential later this summer and then add to pricing when good opportunities become available.