The cotton market pulled up its boot straps this week, as the closing bell brought the December futures weekly settlement back above 64 cents to a close at 64.21 cents.
The market flirted with one of the older support levels at 63.50 several times. But the 64 cent level provided enough support by week’s end, and the weekly settlement was one point to the plus side.
The market was not faced with any bearish or unexpected news. The U.S. crop continued to make excellent progress as Mother Nature pumped a glory hole of heat units across the entire U.S. crop. India received some very beneficial rain. Yet, the U.S. crop remains behind last year’s pace, and the Indian monsoon remains full of blank spaces and question marks. Nevertheless, the world crop improved.
While the U.S crop is now on pace to catch up essentially to the prior year’s pace, it should be noted that the fruit set is not as heavy as in the prior two years, and yields are expected to be lower in both the Mid-South and Southeast regions of the U.S. Subsoil moisture has Texas in position to top prior year yields, assuming Mother Nature allows for a longer than normal growing season. One Texas grower commented that he could see heat units pouring into his plants last week as he watched bolls develop. While that is a bit of an overstatement, last week’s plant development was at a record pace.
Yet, the crop is so far behind it will still require a longer than average growing season to make its potential. Mother Nature still holds that card.
In the meantime, the market – on its heels all week – should remain locked in its long term trading range between 63 and 69 cents. There are a few pundits offering up 58 to 59 cent lows once again. But they even say such an event would be very short lived, and the lower end of the range – 63 cents – should be viewed as the market low.
My temptation for the slow trading week was to blame the lazy dog days of August. Yet August trading does not begin until next week. However, we can be sure that in the absence of a weather event in the near turn, August trading will be just that – the dog days of summer. That is, a low volatility market backing and filling at a very slow pace and going nowhere at a snail’s pace.
The market pulled off this week’s effort in spite of other agricultural markets seeing the downside, especially soybeans and corn. Cotton got the attention, however, as it is already trading below its break-even price, while corn is hovering just above break-even with soybeans still commanding a solid production profit. Cotton is facing another decline in plantings in 2016 if it is unable to pull itself some six to eight cents higher between now and February.
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