By admin       2018-05-28

The bull’s sentiment is becoming too strong and if the Chinese investment dries up then the market is doomed for at least a 5 cent pullback, if not more. Thus, the hope of 90 cents-plus now hinges on the Chinese speculator and Mother Nature’s continuing blessing of the Southwestern U.S. crop. Plant, but also Price! The bulls are also supported by the ever increasing open interest that has kept the technical indicators of the market very excited. Too, the new found Chinese demand and the realization that the Chinese Strategic Reserve auctions, after being only some 50% subscribed for a couple of months are now fully subscribed as sales have reached to maximum 30,000 ton limit every day. This only opens the door for more U.S. cotton to be sold into the Chinese market. Thus, traders sense manna from heaven as both the fundamental and technical market factors are all pointing to higher and higher prices. However, the bullishness, in my opinion, has about run its course. There is room to the topside as December is within the reach of 90 cents. Nevertheless, as stated, it is time to have at least 50% of the 2018 crop hedged. West Texas has received beneficial rain, but the extreme drought will resurface without continued showers. Weekly export sales were a net 50,700 RB of Upland and 1,200 RB of Pima. Upland sales of 152,200 RB of Upland were sold for the 2018-19 marketing year. Price as well as the limited availability of high quality grades are rationing export sales. However, weekly export shipments continue to hold well above pace needed to push 2017-18 exports above 16 million bales and reach our estimate of 16.6 million, some 1.1 million above the current USDA estimate. Some have suggested that the unusually strong level of Indian cotton sold for export is limiting the volume of U.S. sales. However, most of the Indian exports are now of very poor quality and are simply being sold at near record discount levels. Of course, the U.S. low quality has moved almost as well as the Indian cotton as both are significantly discounted. However, the Indian price is more competitive than the U.S. price. The merchants and cooperatives of both countries do not want to carry any cotton to the next year. The inverted market does little more than lock in a loss for the merchants and cooperatives. Thus, the necessity to sell at any price. U.S. shipments totaled 421,000 bales on the week as 403,000 bales of Upland were shipped along with 18,000 bales of Pima. Mill on-call sales fixations are increasing as mills face higher and higher prices. Yet, there are some 4.6 million bales that still must be fixed by the third week in June. It should be noted that mills have already begun fixations on 2019 on-call sales. This position suggests that mills expect the current market strength will hold in the 2018-19 marketing season. Fundamentals also suggest cotton supplies will be even tighter in 2019 than in 2018. Hold on for higher prices, but the new highs we expected have now arrived. Do not get caught without as much as 50% of your new crop priced. Feed a bullish market, sell into it!!

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