The Cotton Market For Week Ending July 8, 2016

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The holiday-shortened week ending  July 8 saw ICE cotton futures in a gyrating sideways pattern between 64.20 and 66.20 cents per pound (basis Dec’16).  Then the Dec’16 contract rose on Friday to settle up two thirds of a cent on Friday at 65.81 cents per pound.  Cotton-specific news this week included a higher U.S. export sales (reported Friday), in keeping with the expected demand pattern.   Chinese and world cotton prices remained in an uptrend this week, although Zhengzhou cotton futures were lower on Tuesday.  The latter may have been associated with uncertainties about the value of Chinese currency and possible net capital outflows.

Grain and oilseed futures weakened on Tuesday and traded sideways after that, in apparent association with improved weather outlook. Financial markets had a mixed risk on/off week which was capped on Friday by a better-than-expected U.S. jobs report.  Friday’s stock and commodity markets were higher.

Regarding new crop marketing, a 65:58 cent put spread on Dec’16 futures cost has been varying a lot with the fluctuations in the underlying futures contracts.  The spread would protect against Dec’16 declining to 58 cents.  However, it currently does not make sense to pay too much to protect against a similar sized downside risk, especially when the downside risk is already protected by the loan program.  If Dec’16 ever rallies into the upper-60s, this spread might become more affordable and more rational.

For further analysis and discussion of near term price behavior, click on the menu above entitled “Near Term Influences”.    Longer term price behavior is more influenced by fundamental supply and demand forces, which is discussed above under the “Market Fundamentals and Outlook”  menu tab.

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We acknowledge the gracious support of Cotton Incorporated for this educational website.

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