The Chinese have brought in their lunar new year; of the monkey. Ironically, meaning unpredictability with some ups and downs. Bearish sentiment across the markets is dominating news and commentary. Cotton along with most other soft commodities is testing support levels to the downside sub-60 cents per pound for the May 16 Contract. Cotton futures have been traded mostly between low 60’s and mid 60’s ¢/lb cents. During the last week it has fallen to a low 58.91 ¢/lb basis May 16 (at the time of writing).
Fundamentals for cotton on balance have proven bearish this month as the USDA February forecasting 2015/16 with lower expectations of consumption and trade relative to last month. Consumption has seen a reduction for China and slowed imports which indicates demand weakness. Global ending stocks are now forecast at 104.1 million bales. Some key market indicators that are significantly lower based on www.bloomberg.com (at the time of writing) include the Dow Jones index on 16,014.38 points (1yr Return -7.36pc). Meanwhile the broader S&P index was 1,852.21 (1yr Return -7.36pc) and the CRB commodity index is currently 156.58 (1yr Return -31.3pc).
The Chinese influence is driving many of the markets with reduced raw cotton imports in conjunction with significant lower prices of crude oil and thus polyester products placing pressure on cotton futures. China continues to hold over half the world’s cotton in reserved stocks and their limited issuance of additional import quotas impacting on cotton futures. Like most markets the fundamental picture provides basis for emotions of fear and nervousness along with lack of demand from mills is weighing heavy on the market. The only bright news to date have been the strong demand in china’s appetite to import more yarn products. This however, may not continue to be the case as we move forward.
The Australian dollar is sitting at 0.7040 at the time of writing and analysts expect the it to have a bearish outlook in the short to medium term. The Aussie are taking cues from commodity prices along with the US Federal Reserve as we look on with interest as they announce what their interest rate intentions will be; to hold or to raise.
Aussie basis has been under some pressure as a result of a lack of mill demand in conjunction with other factors like the carryover of old crop.
Through all this negative data and emotion the Australian dollar cotton price has been predominantly in the $460 to $510 range. Growers have been able to get some production coverage locked away at these levels. We note that these prices are still above the mean average cash price of $450/bale.
Cotton production has firmed as we have move into February with some much appreciated rain over the past month as our cotton crops progress to the business end of the season. Growers will be looking to get more production coverage in the event of rallying futures and to take advantage of some downward spikes in the Australian dollar.
I wish all growers the very best finish to the season with some bright sunny days to maximise their yield potential and quality.
