Cotton Marketing Planner
Department of Agricultural Economics, Texas A&M University
Cotton Marketing Summary for the Week Ending Friday, November 13, 2020
The week ending Friday, November 13 saw ICE Dec’20 cotton futures price rise in Monday’s “risk-on” market reaction to covid vaccine news. Prices then peaked and slid to the week’s lows on Friday (see graph above courtesy of Barchart.com). Open interest eroded all week, suggesting the possibility of a little long liquidation by week’s end. But the week was mainly influenced y very high volume spread trading during the scheduled fund rolls.
Commitment of Traders data is delayed until Monday, but I am not expecting much in the way of change. The last (November 3) snapshot of Commitment of Traders data showed reversal to the October speculative buying. The net long hedge fund net long position decreased from a lot of long liquidation and a bit of outright short selling. The index fund net long position did increase some, however. The U.S. dollar rallied, peaked and then mostly traded sideways.
Fundamental factors this week included a static WASDE report from USDA, with no expected cuts of U.S. production and the bearish ending stocks outcome remaining. The latest (through November 5) export sales report saw stronger net sales in concert with last week’s lower prices. Commercial U.S. cotton demand remains reportedly slow (see here for an oft-repeated official statement “The COVID-19 Pandemic continues to negatively affect cotton demand and disrupt supply chains.”). Certified stocks continued to increase a lot.
Chinese and world cotton prices were mixed this week.
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 or years to resolve. In the near term, ICE cotton futures have found new strength on remaining production uncertainty and speculative buying, as well as Chinese state buying. There is also index fund buying, presumably influenced by unprecedented money flows created by the Federal Reserve. There is also the possibility of commercial buying from Chinese mills in response to 1) newly available import quota, 2) restrictions on Chinese sourcing of Australian cotton, and 3) 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 sustained 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).