Is there an oversupply of cotton?

January 17, 2018 09:59 AM

General Comments:  Cotton was a little lower on some follow-through selling in response to the USDA reports released on Friday that showed ample production and supplies for the U.S. World ending stocks were higher than expected as USDA increased Chinese supplies and cut Indian supplies less than expected. The reports show that there is plenty of cotton here and around the world, but getting it out of producers hands has been difficult and prices have been much higher than most commercials had expected. 

Commercials are being forced now to buy cotton at higher levels to cover the big on-call position of unpriced cotton that they have contracted for. Trends are still up. The hurricanes and the freeze appear to have really damaged quality and the quality losses have forced mills and exporters to pay up for better quality cotton. Producers remain limited sellers at best. 

Overnight News: The Delta and the Southeast will get precipitation today and late this weekend.  Temperatures should be below normal early in the week and above normal by the weekend. Texas will see mostly dry conditions. Temperatures will be on both sides of normal early in the week and warm by the weekend. The USDA average price is now 78.66 ct/lb.  ICE said that certified stocks are now 48,110 bales, from 46,110 bales yesterday.

Chart Trends: Trends in cotton are up with no objectives. Support is at 8000, 7940, and 7870 March, with resistance of 8280, 8400, and 8460 March.

 General Comments:
 FCOJ closed higher and made new highs for the month. It was an impressive sesión as there is no cold weather in the forecast for the state. The current weather is good as temperatures are warm and there is little rain around, but the crop is small anyway. The harvest is progressing well and fruit is being delivered to processors and the fresh fruit packers.  Trees in Florida that are still alive now are showing fruit of good sizes, although many have lost a lot of the fruit.  Florida producers are actively harvesting and performing maintenance on land and trees.  Processors mostly getting field-run fruit. 

Overnight News: Florida should get mostly dry weather and above normal temperatures.  Brazil should get scattered showers and near to above normal temperatures.  ICE said that no January deliveries were posted yesterday and that total deliveries for the month are now 140 contracts.

Chart Trends: Trends in FCOJ are mixed. Support is at 134.00, 132.00, and 131.00 March, with resistance at 138.00, 140.00, and 141.00 March.

 General Comments:
 Futures were lower in New York and near unchanged in London again yesterday. New York traders are noting the good weather currently being reported in Brazil and expect another bumper crop. London remains in a trading range despite the potential for big offers from Vietnam. Internal prices in Vietnam remain at high levels compared to London and producers and exporters appear to be waiting to see if the market can rally further. 

The situation seems little changed in Latin America. Brazil exports are reduced at about 2.8 million bags on what is called reduced inventories held by exporters and producers. Many are concerned about the potential for reduced Brazil production due to earlier drought and the cold and dry Winter. There is plenty of rain in some areas now and the good weather now has caused a lot of speculative and some commercial selling.  

There are also reports of short crops in parts of Central America and some areas in South America due to the lack of farmer investment from the low prices.  However, Honduras has been a very active exporter and appears to be in a position to make up the difference in exports from reduced offers in the rest of Central America and Colombia.  Differentials in Central America are low.

Overnight News: Certified stocks are higher today and are about 2.006 million bags.  GCA stocks are now6.631 million bags, from 6.737 million in November. The ICO composite price is now 113.03 ct/lb. Brazil will get light showers each day with best amounts and coverage expected today and over the weekend. Temperatures should be near to above normal. Colombia should get isolated showers. Central America and southern Mexico should get isolated showers or dry conditions. Vietnam will get mostly dry weather, but some storms are possible in the far south. Temperatures should average near to above normal. 

Chart Trends: Trends in New York are mixed to down with objectives of 116.00 March. Support is at 118.00, 113.00, and 112.00 March, and resistance is at 123.00, 126.00 and 128.00 March. Trends in London are mixed.   Support is at 1700, 1670, and 1650 March, and resistance is at 1740, 1760, and 1770 March.

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About the Author

Jack Scoville is a veteran futures market analyst specializing in grains, softs, rice, oilseeds, and tropical products such as coffee and sugar. His industry contacts in South America, Europe, Asia, and North America provide him with a unique and comprehensive view of these markets. Jack began working in the futures industry over 30 years ago and spent 10 years working on the floor of the Chicago Board of Trade in various roles, starting with The PRICE Futures Group since it was established in 1988.