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Weekly Cotton Market Update

Recent Price Movement

Prices surged higher late last week, in action that may be related to a stronger than expected export sales report.

Last week’s export sales data indicated that new contracts had been signed representing a volume near 200,000 bales, which was far and away above the negative reading that resulted from net cancelations in data from the week before.

Since bouncing higher, cotton prices have stalled out in more recent trading with values stabilizing at an apparent resistance level near 67 cents/lb.

A slight inversion has developed, with values for the most actively traded July contract marginally above values for the new crop December contract.

The general pattern in the peaks and valleys marked since January suggests a slight upward trend, with each successive peak tending to be a little higher than the previous peak and each successive trough tending to be a little higher than the previous trough.

There has been much discussion regarding a dearth of high quality machine picked cotton and this may be supporting U.S. prices.

The question is whether prices may continue to hold stronger values given the fact that U.S. carryout is forecast to be 80% higher than it was a year ago.



Crop Development

The market is forward looking and prices may also be influenced by expectation for the upcoming 2015/16 season.

It remains very early, but preliminary estimates suggest that offtake next crop year will nearly equal the size of the harvest.

This suggests that ending stocks will be maintained at a solid level and that there could be continued downward pressure on prices.

However, one factor that upset the balance between production and demand is the weather.

Thus far, this year’s crop has gotten off to a slower than average start, which could emerge as a concern with respect to the availability of the harvest if delays persist throughout the summer.

The delay at the national level is primarily a result of slower starts in growing regions outside of the Far West.

Although the high plains of Texas remain in extreme drought, other areas of the western part of the state have enjoyed drought relief.

Meanwhile, southern and eastern Texas, as well as much of the Mid-South and Southeastern growing regions have had more than enough rain and likely are looking forward to some dry spells in order to allow field to progress at a faster rate.



Important Data Release Next Week

Next Thursday, May 9th, the USDA will release an updated set of forecasts for production, consumption, and trade for 2015/16 season.

Their take on the U.S. supply situation, as well as their estimates for countries around the world could be expected to help shape price direction.