Plains Cotton Cooperative Association (PCCA) Weekly Cotton Market Report: July 29, 2016

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RUMORS AND WEATHER CAPTURE MARKET’S ATTENTION

Rumors from China and weather concerns in Texas and parts of India were the topics of conversation this week in the cotton market. The rumors weighed on cotton futures prices late this week at the Intercontinental Exchange (ICE) in New York. Consequently, the December contract managed only a 7-point gain for the marketing week ended July 28 as the market appeared to settle into a new trading range following the breakout earlier this month.

There were reports this week that Chinese textile mills were asking the country’s National Development and Reform Commission (NDRC) to extend sales from state reserves through late September. The original plan was to cease sales at the end of August. The mills cited current high cotton prices and demand for local yarn that are requiring some of them to suspend operations. Virtually all cotton offered daily by the reserve continues to be purchased which now totals more than seven million bales since the auctions began in May.

The potential extension and sale of more cotton from the reserve apparently weighed on ICE futures during Wednesday’s and Thursday’s sessions which seemed to perplex some traders and analysts since it indicates better-than-expected cotton demand. It also should not reduce cotton imports by China and would help further reduce China’s massive reserve.

Meanwhile, traders were keeping a close watch on weather developments in West Texas and western India. Abnormally high temperatures and lack of widespread rain on the Texas High and Rolling Plains this month have stressed dryland cotton fields to the point that some plants are beginning to shed fruit and reduce yield potential. While there have been some showers in the region this week, they were isolated and produced very little precipitation.

FRIDAY, JULY 22

Futures prices moved lower and traded below 72 cents possibly due to a stronger dollar, weaker soybean prices and lower futures prices in China. December cotton traded down to 71.86 cents per pound before settling at 72.68, down 29 points. All contracts settled on negative ground.

MONDAY, JULY 25

The down trend continued as contracts were on the defensive the majority of the ICE session as traders noted forecasts for rain in West Texas. December cotton moved minimally higher for a brief period before returning to negative ground. The contract settled 39 points lower at 72.29 cents.

TUESDAY, JULY 26

Cotton regained strength Tuesday, and all contracts settled with solid gains. The breakout started early in the session, and December traded up to 74.23 cents, the first time in five sessions the contract traded in the 74-cent level. December settled at 73.95 cents per pound, up 166 points.

WEDNESDAY, JULY 27

Cotton futures traded on positive ground part of the session with December again surpassing 74 cents before encountering resistance. Favorable weather forecasts for West Texas and India appeared to weigh on the market. December cotton settled 40 points lower at 73.55 cents.

THURSDAY, JULY 28

Despite a weaker dollar and a solid export sales report, ICE cotton futures spent most of the session on negative ground due to selling pressure. December settled at 73.04 cents, down 51 points.

USDA reported net export sales of U.S. cotton in the week ended July 21 totaled 44,600 bales for delivery in the 2015-16 marketing year and 190,100 for delivery in 2016-17. Export shipments totaled 181,500 bales for the week. Vietnam, Indonesia, Mexico, Turkey, and China were the primary destinations.

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