The bulls are running. The ICE Dec contract soared to close out Aug and commence Sept, gaining 373 points on the week and 460 in consecutive weekly wins to settle above resistance and outside of the recent consolidation range at 71.88.
Further, Dec was a 207 point winner over the course of Aug. The Mar contract gained 307 points on the week, strengthening the Dec – Mar inversion to 88 points.
Do not let our elation mislead you. We are very much aware that the market’s current bullish climate is mostly at the expense of a portion of US producers. It is a sad and frustrating situation when money, sweat, mental energy and all else that goes into making a crop is washed away or damaged at the hands of Mother Nature or chance. Even if insurance policies could replace all that has been lost (and they canΆt), the experience of losing a crop is traumatic.
Our thoughts are foremost with those who fell to the ravages of Harvey and its wake.
We had estimated around 500K bales of cotton remaining on the stalk within regions affected by the hurricane. Early this week we projected a production loss of around 250K bales, but this accounted only for field losses. Some estimates, including module losses, have now moved to more than 600K bales.
Given that we are estimating from a respectable distance – while respected professionals with boots on the ground relaying that they cannot accurately gauge losses just yet – we will only say that we think total damage will likely be in the mid- to modestly lower range of current estimates.
Demand for US bales for export remains formidable. Total net sales against 2017/18 slowed for the week ending Aug 24 but remained very strong at nearly 240K running bales. Sales against the 2018/19 MY were in excess of 26K RBs, bringing the running total to approximately 625K 480lb bales.
Outside of South Texas, Harvey moved across the heart of the Midsouth, bringing heavy rainfall and high winds. Accumulations across the region range from 3 to 7 inches, with reports of localized accumulations of up to 10 inches. The amount of precipitation on the last day of August was surely not needed, but we believe any widespread major yield and quality losses were avoided due to the overall maturity of the crop, which is a bit off the average pace, and to the fact that little to no defoliation treatments having yet been applied.
Defoliation treatments should begin within the next 10 days and continue throughout the month of September. Cotton crops across the Southeast continue to hold excellent yield potential and we expect defoliation on early planted Georgia dryland acreage to gain momentum over the next two weeks.
Recent rains across the Carolinas have done more good than harm, while Alabama has had too much.
Reports from West Texas continue to be extremely optimistic in regards to yield, with all eyes now focused on temperatures and fall weather. Oklahoma has the potential to make the biggest crop they have had since 1942 thanks to an increase in planted acres and ample rainfall on a large amount of dryland acreage.
With all that being said about “potential”, warmer temperatures, sunshine and a lack rain and storms are needed across the Cotton Belt in order to bring “potential” into reality. Sunshine is in the forecast for most of the southern US over the next two weeks with high temperatures in the mid 80s from Lubbock, Texas, to Clarksdale, Mississippi, and Moultrie, Georgia.
Internationally, sowing of the 2018 crop has commenced across Queensland, Australia. With respect to the northern hemisphere we continue to hear only minor concerns with some of the more positive reports recently coming out of Pakistan, in particular Punjab. Many people from that region of the country have forwarded us pictures for our crop gallery, with most of them accompanied by optimistic, if not boastful, notes. After viewing the photos, we cannot say that either their thoughts or emotions are misplaced.
Our broker friends tell us forward contracting saw renewed activity this week, and we applaud those producers for taking advantage of the third rally since the June selloff. While we are encouraged by the strong close on Friday, experience tells us that in the absence of fresh bullish news over the weekend, the air may be getting thin for the Dec contract, and producers with more than ¼ to 1/5 of their expected yield unpriced should take advantage of any continuing upward movement early next week.
With that said, Harvey has already reduced the amount of white cotton on merchant inventory sheets, and that should improve the basis for premium middlings at harvest time. This improvement may or may not offset harvest pressure on the price of recaps, but it could understandably give producers who have forward contracted much over 50% of their crop reason to wait and sell the remainder of their crops to the spot market.
For next week, the standard weekly technical analysis for and money flow into the Dec contract remain bearish, despite trading action over the past fortnight. On a daily basis, the market is now overbought, but a final weekly settlement above established resistance and outside of the recent consolidation range are bullish factors – at least for the near-term. The market may now look to close overhead price gaps above the 72.00 level. However, it seems unlikely that the gap below the market at 68.15 – 68.56 will go uncovered (at least completely) for an extended period.
Have a happy and safe holiday weekend!
