O.A. Cleveland Weekly Cotton Update: August 19, 2011

The dog days of August are much better with Dollar Cotton again, that is, except for the mills.  Then, for most Southwest growers it is not that exciting as most do not have any.  As much as the very significant head and shoulders formation suggests an ICE December price down to 84 cents, this week’s return to 106 cents is encouraging; even more so given that December 2012 pushed back above 97 cents and December 2013 was back to 99 cents. 

As commented last week, the cotton market must keep up with oilseed and grain prices over the long haul.  Near term demand fails to impress the market as the world consumer has backed away from the retain store just a bit.  The consumer will return, but with the daily news inundating us with world “recession” forecasts, it is appropriate for the consumer to take a breather.  The fear of continued price trips back the low 90’s, and possibly lower is still with us.  Yet, the market worked overtime this week attempting to prove that it has put in a double bottom on the charts. 

The frailty of nearby demand was demonstrated this week as mills moved delivery of prior purchased cotton from 2011-12 delivery to 2012-13 delivery.  Thus, mills are also questioning whether the consumer will return to the store shelves within the coming year. This attitude sits as a lead cap over the market. 

This week’s price advance had its roots in concerns regarding the Pakistani crop.  Excessive rain was noted as the problem.  Yet, I am reminded of the Chicago Board of Trade saying that goes, Rain Makes Grain.  Well, rain makes a little cotton too!  Thus, in lieu of anything resembling last year’s flooding in Pakistan (which was near this time last year), it is far too early to kill that crop.  Too, part of the price rally this week came from another Pakistani event.  Gins shut down in protest to a government imposed tax.  While the government has announced it will suspend the new tax, gins have remained closed, awaiting official government confirmation.

The uncertainty surrounding not only theU.S.and European markets, but the Asian markets and the Chinese economy as well, has kept commodity traders off the streets. Yet, the volume of business is lagging.  Both mills and traders are ready to party, but as of yet no one has given any indication of issuing invitations.  The crop is in the hands of Mother Nature and she will determine the final December price. 

However, it should be noted that Call Sales have increased for two consecutive weeks.  That, taken with the non existent level of certificated stocks (14,000 bales), can generate some buying.  The bulls would like to push December above 113.00, only Mother Nature can cause that.  We will wait for her declaration.