That is a good description for the cotton market as I wade through the waterlogged Midsouth. Cotton prices continue to reflect the burdensome carryover both in the U.S. and around the world. The 70-73 cent level, basis July will likely be the primary trading area for another month.
Yet, a test of 68 cents is in the works, just as is touch of 74 cents. Currently, the market is attempting a seasonal rally that could challenge the 74 cent mark. However, export sales begin to disappear as July moves above 72 cents. December is positioning itself to begin to gain on the July contract. Weather uncertainty is beginning to creep in to the market picture.
The seasonals moved July higher on early Friday trading as mills came in for more buying when July slipped to 69.55 on Thursday. To date, mill demand has kept July from moving lower as every attempt to break below 69 cents was met with excellent buying.
Yet, short staple cotton has suffered from lack of demand as more and more mills are looking to spin quality yarn. West Texas, once the world capital of short staple cotton, has transformed itself to one of the world's premiere quality growing areas.
While export sales picked up late this week, the prior week's sales slumped as July had hovered near 72 cents and above. Actually, the level of sales and principal locations were very similar to sales made in the third week of April. Sales lagged during the week ending May 5, 2008 as mills held firm on bids only below 71 cents. Net sales totaled only 231,500 RB.
Upland sales totaled 228,900 RB while Pima sales were 2,600 RB. China (103,900 RB); Indonesia and Taiwan were the primary buyers of Upland. India (1,000 RB); Pakistan, and Japan were the primary buyers of Pima.
Weekly export shipments are running bout 150,000-200,000 bales below the level necessary to meet the USDA projection of 14.2 million bales. Exports totaled 285,400 RB with Upland accounting for shipments of 258,100 RB while Pima shipments were 27,200 RB.
Primary destinations for Upland were China (102,800 RB); Turkey, and Mexico. Again, this was almost like a blueprint of shipments for the week ending April 25, 2008. The primary destinations for Pima shipments were India (5,400 RB); Indonesia and Pakistan.
Certificated stocks were stable on the week as the level stands at 1,420,238 bales with another 90,444 awaiting review. This level of deliverable supplies should keep a heavy hat on July prices through the end of its delivery period. Additionally, this will also support the premise that July will lose ground to December futures.
The potential for a price bump for the December contract waits for the Northern Hemisphere planting to conclude as both weather concerns and the probability that both U.S. and world sowings will not meet USDA projections.
U.S. plantings are though to be between 9.1 and 9.3 million acres, but that formal announcement from USDA awaits the June plantings report. Yet, while the Midsouth is waterlogged and well behind, a dry week is all that ails that region (and maybe a ten cent price rally).
Chinese acreage appears to be slightly lower than expected, primarily due to the international food crisis and its impact on the price ratios of competing crops. Additionally, the shortage of irrigation water in Pakistan will likely impact their yields.
A rally or two up to about 74 cents will be beaten back. December will find considerable difficulty holding 80 cents for at least another month.
