Mill buying increases, but cotton market remains cautious

There are small cracks showing in the cotton bear’s armor. They are small, well camouflaged and can be difficult to penetrate, but eventually they are there. Indications are that millers may finally see the value of cotton at prices in the mid-70s. Demand will need to surface by the first quarter of 2025 to really build a higher price base.

Of course, for growers, prices in the mid-70s are nothing short of depressing. However, the key is that the mills are showing indications that they are willing to step in and not only buy cotton, but fixing the price on some orders is very suggestive that 1) a business is being done and 2) more importantly, that the mills believe that orders are imminent. Business remains slow, but many mills have indicated a willingness to marginally increase yarn spinning.

Again, caution is the order of the day as cotton purchases remain small. However, by and large, the buying has taken place over the past two weeks. Our enthusiasm level has increased, but any move to higher prices will be difficult as there will be increased competition in the world trade market. However, the focus now is on trying to build a price into the extremely high 60s to mid-70s.

The trading range may widen over the next two weeks as the old crop’s swan song comes with the first July announcement day on June 24. Both the July and new December contracts are facing a 68-78 cent trading range now that eight Jim Roger and Goldman Sachs List Days have passed.

The combination of new sales for the 2024-25 marketing year, coupled with the growing and strong potential for unused 2023-24 sales to be added to 2024-25 export sales, is increasing demand for price fixes (buy futures ) on the December 2024 futures contract. Of course, some of them will likely roll over to the March/May/July 2025 contract months, but many will be exercised on the December contract. This is starting to create support for prices under the December contract.

It is noted that grower standby purchases (need to sell futures) are also increasing with the December contract, but miller standby sales are increasing at a faster rate. Again, the implication is that the December futures contract is starting to find price support. There have been few, if any, bullish or positive indications in the market. Thus, it is positive to find any potential bullish indicators.

Also, the weekly export sales report provided support for this positive news as weekly net mountain sales were excellent at 177,100 bales. Granted, export sales should be extremely good with futures prices in the mid-70s. However, sales were made in 20 countries. As expected, China was the top buyer, taking 78,400 bales. Other major buyers were Vietnam (27,700 bales), Pakistan (16,900), Macau (14,800), Mexico (6,200) and Turkey (6,000). Selling volume coupled with the number of buyers provides a hint that price support is hidden within the trading data.

Of course, China, Pakistan and Vietnam are the three biggest customers. China has slowed its purchase of some other goods – an indication that the Chinese have set their purchase targets for those goods. However, the Chinese have not slowed down their cotton purchases. The buying program is not expected to slow for at least another 60 days, or until the Chinese can better assess domestic Chinese production. Also, China’s needs will continue to exist at least into the second quarter of 2025.

The USDA’s June supply demand report was in line with expectations and contained no surprises. The main change from the May report was that USDA exports decreased by 500,000 bales from 12.3 million to 11.8 million. The report confirmed a long-standing warning that the US – for the first time ever – lost its crown as the world’s top cotton exporter to Brazil. The USDA predicts that US exports in 2024-2025 will surpass those of Brazil. However, this may not be the case.

Some suggest the USDA cut of half a million bales was too much and will be adjusted higher in the July report. However, based on the rate of shipments over the past two months, it is likely that US exports will decrease by as much as another 300,000 barrels. It’s hard to argue with that suggestion, given that New York ICE is trading in the low 70s.

However, the market is finally on a slow path higher.

Give the gift of cotton today.