Rising Cotton Consumption Drives Prices to 81 cts.

Prices regrouped on the week with the nearby May trading to 81 cents and the July contract eased up to 82 cents.  World cotton consumptions continues to expand it wings as growth is now evident expected across all major continents. Speaking of wings, those feeding me crow can now finish the pie. At least mine has morphed into Old Crow.  Yes, it was scary for a couple of weeks.  The market advance is back on track as prices again trending higher.  The short term trend is up and the long term trend is strongly higher.  The May and July contracts will again challenge the 85 cent mark, but price volatility will continue given the large imbalance between on-call sales and on-call purchases. Additionally strong export sales and shipments will continue into the 2018-19 marketing season.  Given the potential for price volatility, mills may have at least one more opportunity to fix prices below 78 cents.  Thus, growers should not expect an easy ride, again due to the aforementioned price volatility.  However, demand is exceeding expectations. We have repeatedly stated, demand drives market price higher. The new crop December sits on an uptrend and prices are well supported by demand. World consumption will further expand in 2018-19 and 2019-20 marketing seasons.  New fundamentals must surface for the December 2018 futures to move above 78 cents. Yet, I would be remiss if I did not mention that USDA has projected 2018-19 prices to fall by 9%.  That was surprising.

Both export sales and weekly shipments were well above 325,000 bales on the week. Net Upland sales of Upland cotton were 364,800 RB and Pima sales were 2,800 RB. Upland sales for the 2018-19 marketing year were 131,000 bales.  Turkey, Vietnam, China, Bangladesh and India led the parade of 19 countries that purchased U.S. cotton.  China and India were notable as some continue to suggest China is restricting their purchases of U.S. cotton.  India seems to surface every week, in some fashion.  USDA has lost the confidence of Indian cotton traders due to USDA’s bias.  India, sitting on a near record carryover level—according to USDA, continues to buy U.S. cotton to meet its domestic requirements. 

Weekly shipments included 324,700 RB of Upland and 17,800 RB of Pima.  The primary destinations were Vietnam and China.  We have discussed the backlog record/near record of cotton cleared for export, but is waiting for shipment.  U.S. merchants are no longer asking logistics companies for transportation costs, but rather, “Can you pick up my load?”  Often for now the answer is no, and the export backlog will continue.  Yet, there is a somewhat beneficial effect.  Companies are scrambling to get cotton of the High Plains of Texas, but are not find available rail service or truck service.  The missed a powerful new regulation that took affect with the new tax legislation.

Little noticed along with the new tax legislation that took effect January 1, was a provision requiring electronic log-ins for truckers along with a 90 day user familiarity grace period.  Both truckers and logistics companies are now subject to significant penalties for exceeding allowed work hours. The regulation is very similar to that of airline pilots.  The logistics industry accepted the legislation, claiming it was the only way hours could be controlled.  The underlying factor was the provision of safer highways.  The agricultural industry has been affected more by the new rules more than other industries as agricultural merchants, as a group, failed to understand the far reaching arms of the legislation.   Merchant and cooperative profits alike will likely be negatively impacted in both the 2018 and 2019 crop years as firms scramble to move products through the supply chain.  Simply, the expanding economy has placed a higher value on moving consumer goods than raw agricultural products.  The industry is attempting to move cotton off the High Plains of Texas (as demand is strong), but is faced with using some outside storage.  They do not find that acceptable, but will likely be forced to accept the reality of such.

Any delay in 2017-18 export shipments will be a boost to 2018-19 shipments.