ICE cotton bulls notched a win on the week with the Dec and Mar contracts gaining 184 and 200 points on the week, respectively. The Dec – Mar spread finished the week near unchanged, inverted at 31 points.

Demand, demand, demand….

We have begun to hear a few analysts talk about stagnant demand at current price levels, with sub-66.00 levels, basis Dec needed to stimulate strong interest.

Really?

Of course old crop sales have dropped to next to nothing, but that is because the US has next to nothing left in terms of uncommitted bales. But new crop sales remain outstanding. Cumulative new crop sales have now traversed the 5M bale (480 lbs) mark, following another round of strong US export data for the week ending July 13. New crop commitments are now well over double what they were at this time last year.

Note that this is with merchants strengthening basis quotes to mills! Given that mills are buying basis at current levels (on-call commitments increased by around 625K bales last week) we see this as a bullish sign.

To the additional detriment of our merchant friends, the Dec – Mar spread remains inverted – another sign of nearby demand and support (although also of deferred bearishness). This is a market occurrence that is seemingly becoming the norm rather than the exception.

On the production side, USDA summer employees are currently braving the heat across The Belt as they walk fields across AR, GA, MS, NC and TX, performing square and boll counts and making notes on other plant and field parameters.

We look forward to seeing the results of their work.

“Pickin’ and Ginnin’” of the 2017/2018 cotton crop has officially commenced with harvest of the Rio Grande Valley crop underway. Modules are showing up on gin yards with several gins starting operations for the year. The Corpus Christi classing office has classed nearly 17K bales, to date.

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The USDA has the US crop rated at 60% good to excellent condition as of July 16. We would agree that we have a good cotton crop in the making but traders should also be aware that it is only mid July with the crop on the fence, meaning it could go either way. With the onset of hot and dry summertime weather across the southern US, it is critical this crop gets a reprieve from these conditions soon with some timely moisture and break in the high heat indexes. Irrigation pumps are running everywhere possible. It’s hot!

Producers got a glimmer of hope this past week as the Dec contract appeared to have set a floor at 66 and toyed with a move to 70 cents. Some of us have believed that the June sell off was overdone, and this past week’s trading only served to justify our arguably overstated optimism. It would be going well out on a limb to argue for a rally to the low/mid 70s in the next week or so, but we’d strongly recommend producers act on any opportunity to price cotton over 70 cents.

Producers also got encouraging news from the Senate Appropriations Committee on Thursday with news that cottonseed provisions are included in the FY18 appropriations bill. While being included in the bill coming out of committee isn’t a lock on actually seeing a working cottonseed program, it is very encouraging to see the same senate that allowed Senators Leahy and Stabenow to torpedo cottonseed funding a few weeks ago has now put its stamp of approval on the program. NCC continues to work on a ginning cost share payment retroactive to the 2016 crop, hoping to bridge the gap until a cottonseed program can once again provide a much-needed safety net for US cotton producers and the cotton belt.

In other legislative news, the dicamba drama continues to evolve in several cotton producing states. In a nutshell, there is a tug of war between those who recognize the value of the technology and are fighting to keep it available versus those who don’t believe the new formulations are stable and seek to ban dicamba altogether. One thing both sides can agree on is that dicamba is unlike any other herbicide on the market for its ability to volatilize and the extensive requirements to properly apply it. We remain hopeful that those producers who have gone off label to save money or out of ignorance will see the error of their ways so that we can retain an effective tool in the ongoing battle against pigweed.

For next week, the standard weekly technical analysis for and money flow into the Dec contract remain bearish, but the market is also oversold, despite this week’s win. The market seems to have found demand related support; supply may not be heavily traded ahead of the Aug WASDE report.

Have a great weekend!

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