Cotton (Dec13 futures) has made a dramatic recovery over the past 2 weeks.
Since the low at just over 82 cents back on May 31, prices soared 7 cents to a new contract high of 89.15 cents on June 13. Prices remained around the 89-cent mark on June 14.
This quick and strong advance back to near 90 cents (we’ve not been in this territory since March) does 2 things — it certainly solidifies the “floor” at the 82 to 83 cent area and breaks the downtrend we’ve been in since the peak back in February.
It also demonstrates how quickly prices can change course.
For growers waiting for a chance to do more pricing, this certainly seems like a good opportunity. From a risk management standpoint, we’ve been saying that growers with a comfortable level of production already priced could just be patient and wait for another possible rally. But frankly, few if anybody saw something this strong coming this early in the game.
June USDA numbers. USDA released its monthly U.S. and world supply/demand numbers on June 12. Some analysts have suggested the report was the reason for the rally. In part, perhaps so, but not 7 cents worth (the “recovery” actually started 2 weeks ago, not last week).
The report increased expected U.S. acreage abandonment this year, but left expected average yield the same. The U.S. crop forecast was trimmed by 500,000 bales to 13.5 million. U.S. exports were then also trimmed by 500,000 bales.
For the most part, I saw the report as a mixed bag. Projected 2013-14 world ending stocks were lowered slightly.
Chinese stocks were increased. This means “non-China” stocks were tightened. On the other hand, Chinese demand for imports was lowered by 1 million bales and world cotton use (demand) was lowered slightly.
What’s ahead. The first estimate of actual planting will be released by USDA on June 28. Up until now, including last week’s numbers, we’ve been running off the March planting intentions numbers, historical average yields, and adjusted average abandonment.
What shows up in the July and August reports will be closer to actual and more determine where this market eventually goes. The July numbers will be based on the June actual acreage planted number and the August numbers will be the first based on actual planting, actual expected abandonment, and actual expected yield — not historical averages.
So, the potential is there for the market to at least remain about where it is now (85 to 88+) or eventually trend back down.
But the U.S. crop picture is only one factor in the grand scheme of things and perhaps not even the most significant one.
Crop conditions. USDA released the first crop condition numbers for 2013 last week and overall, the crop is rated 13 percent poor or very poor. The Texas crop is 34 percent poor or very poor. Overall, the crop is rated 51 percent good to excellent.
Want access to the very latest in agriculture news each day? Subscribe to Southeast Farm Press Daily.
More from Southeast Farm Press