Cleveland on Cotton: Avoid the Land of “Wishful Thinking” - July 13

USDA’s world supply demand report, released this past week, provided an understanding of the demise in cotton prices for not only the past 2 weeks, but also all the way back to February.

Yes, the Chinese-U.S. trade tiff has played a role, but 2019 world production is expected to the be second highest on record at a time when major concerns are being expressed about world cotton demand.

In fact, the USDA report suggested that world ending stocks would increase more than 3 million bales during the 2019-20 marketing season, and climb back to at least 80 million bales. Increasing world stocks typically suggests that lower prices should be expected. The report spelled out, in numbers, the long held reaction the cotton market makes following a year price activity is in the high 80s, 90s, and even the magic talk of the infamous “dollar cotton.”

Simply put – prices have long been forecast to fall. Try as hard as we may to talk the bullish influences, we knew if Mother Nature cooperated that a record crop was on the horizon. While neither the U.S. nor the world crop will reach a record production level, the stocks-to-ratio for the U.S., above 33%, is very bearish. It’s the proverbial sports fans talk of “wait ‘til next year.”

The 63-63.5 cent market support has held, but the market is showing signs of further weakening. A 58-65 cent trading range may be in the near future. One can make an argument for higher prices, as can I, but the tea leaves suggest higher prices may be little more than just a wish. Yet, it could happen. However, the “typical” price response suggests lower prices in front of us. With any luck, I will be dead wrong, and I hope I am. Click here to read the rest of O.A. Cleveland's comments this week.