By Don Shurley
The 2015 cotton crop has had a wild ride thus far this season. By wild, I dont mean big fluctuations in price because for the most part, weve been stuck in a 5-cent range between 62 and 67 cents. Nonetheless, even within this long-standing trading range, prices have been vulnerable to what seems to be a constant barrage of economic and policy forces.
Cotton growers, for the most part, have been patiently waiting on prices to reach 70 cents. Given all the factors that have been in play, things could have turned out worse, but so far cotton seems to have weathered the storm. Prices are not where we want them to be but so far weve stayed out of the 50s. Something in the 50s would certainly be like Opie having to get a haircut and a bath the same day.
Prices (Dec15 futures) lost roughly 3 cents during July and continued the slide, bottoming out at 61.79 on August 7th. Much of this decline was due to stable July projections for the US crop, events in Greece and Iran, decline in mill use projections for China, and other signs of economic concern about China.
Just when things looked the worst, prices rallied back to the 67-cent area due to a shocking and bullish USDA August report. The US crop estimate was reduced by 1 million bales and the estimates for the China and India crops were also reduced.
On this rally, talk of 70-cent cotton immediately resurfaced but as I said at the time, there was no basis for that without the market first proving it could negotiate the hurdle at 67 to 68 cents. Prices failed to do that but the recovery to 67 cents made us feel better, nevertheless.
But now, over the course of the last 3 days, weve lost all the bullish gains made post the August report. Prices have thus far dropped 440 points (4.4 cents per lb) this week to close at 62.51 cents yesterday and currently up slightly to about 63 cents.
This weeks implosion was due to concern over Chinas economy, losses in the Chinese stock market, and related fears and concerns that caused the US stock market to also tumble. The US stock market appears to be trying to regain its composure and recover some of the loss.
Markets are governed by information (some of it factual, some not) and emotion. Emotions can sometimes override fact. When that happens, the market will often correct itself.
So what does all this imply for cotton?
USDAs September numbers may impact price. Some observers feel the August numbers were too drastic a cut and the September estimate could be larger. I dont know about that. I see no evidence in terms of crop conditions, etc. that would cause USDA is make much change.
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