Drought is bleeding into two major U.S. cotton production regions, and the markets may have begun to take notice. Could an abnormally dry Texas summer – with even worse drought pervasive across the Southeast – be taking its toll?
The crop’s holding strong so far, according to USDA’s latest crop condition report from July 31. The Beltwide average was rated 51% good or excellent, 35% fair, 12% poor and 3% very poor.
Even so, cotton futures have been on a steady climb, reaching two-year highs on Thursday as futures prices hovered above the 75-cent mark. Grain marketer Dan Hueber says more factors than weather are market movers right now – among them strong demand from several areas.
“China import interest has been stronger than expected,” he notes.
USDA notes a few other major import changes in its July 2016 reports – namely, that Pakistan and India together plan to import more than 1 million bales between the two countries due to lower-than-forecast production and a smaller crop.
And with world ending stocks down, Hueber says the cumulative effects “appear that [they] really shook the bears from their positions, and they panicked for the exits.”
Robert Buckles, with New Hope Risk Management in North Carolina, says the current rally might still have some legs, but he worries about its ability to stick around for a prolonged period.
“From what the technical writers are saying, 80 cents is in the cards,” he says. “If we get some rain in Texas, the fundamentals will take over, and the rally is over in my opinion. Basis has been dropping with every rally in the market, which is also an indicator to me that futures will have to follow soon.”
To track cumulative, observed and seasonal rainfall, and for long-range precipitation outlooks in your area, look at AgWeb’s precipitation maps.