By Chuck Kowalski
Cotton growing areas in Texas are facing very hot, dry conditions and signs point to a lower than expected cotton crop thus far in the U.S. Texas is the largest cotton growing state in the country, so losses could be significant if the weather doesn't turn soon.
Someone who hasn't been following the cotton market for the last year might get very excited about this news. However, there is another side of the equation - as there always is. When we look at the world supply and demand picture, it gets cloudier.
Exports are getting weaker with a great deal of cancellations in recent weeks. You can imagine how some buyers might be inclined to cancel their orders for cotton from March when the price was around $2.20 a pound and now it is less than $1.50.
There are also more worries about a slowing U.S. economy as well as China trying to slow their economy. China and India are also expected to expand their cotton production in the upcoming season - the first and third largest cotton producers in the world, respectively.
Cotton is under pressure this week, as it is an economically sensitive commodity. The recent weakness in the stock market creates a tough headwind for cotton. December cotton, which is the new crop contract, is trading at $1.3050 a pound.
The market fell just below 1.15 in May and I would expect that to be a good value area for cotton. I wouldn't expect prices to fall much below there as long as drought condition prevails for cotton crops in Texas. If sentiment for the global economy turns for the better and stocks rally, cotton could have a nice rally.
Corn futures managed to set another record high even though many other markets were feeling pressure on Friday. July corn futures missed touching the $8 mark by one tick and are currently trading at $7.96 a bushel in the early afternoon.
Corn received more confirmation from the USDA yesterday that supplies are getting tighter for corn in the U.S. and globally. The USDA is now estimating demands to be 55 million bushels greater than production this year.
They removed 1.5 million acres of planted acres from the equation due to weather problems, but many analysts believe that number will grow. There were more than 5 million acres yet to be planted just a few days ago. They could get planted in time, but the odds are against them.
Corn acreage is being revised lower and now we have to worry about yields. More than 20 percent of the corn crop wasn't planted by May 22nd. Yields for corn tend to drop if it isn't planted by late May and especially in June. If things remain constant, yields will probably come in lower than estimated. Weather this season will be as important as ever.
More wet weather in the Midwest over the next week will cause problems with getting the final acres planted. Extreme heat in July could whip the markets into a frenzy as corn goes through its critical pollination phase. Heat stress at this time can reduce yields significantly.
There is also the chance that weather could be spectacular for the season and yields could be revised higher. For now, corn traders know there is no room for error this season and prices tend to rise under these conditions.
No comments:
Post a Comment