The market is in the grips of a crippling bout of bearish fever and every day that goes by, it seems to worsen.
US export sales are impeded by the lack of Chinese demand. This is not likely to occur until the enormous Chinese crop is digested. We have no doubt that the Chinese demand for US cotton is great but this trading activity will be reflected on later cover months. That's no comfort to the throngs of growers unfixed on December contracts.
Furthermore, initial concerns about the crop in the US are perhaps not as dire as previously suggested. Not even the massive deluges in the Northern Delta States made it to the market commentary. The focus is more on the possibility of a larger Chinese crop and continued weakness in this export market.
With October futures contract ending its life just north of 48 usc/lb, this level may serve as the next testing point for the December lows. Unfortunately, it will probably take an act of God to reverse the situation in time for December First Notice Day.
Most of the world's growers will be pleased to learn of the adverse affects on US growers of the export subsidy removal. It's too early to make bold predictions about crop reductions in the US on the back of this but it is encouraging.
The Step 2 export subsidy served as a way of unfairly making US cotton competitive. This was achieved by way of a direct payment to the exporter or the domestic US mill. Without this mechanism, US cotton retains its competitiveness through a reduction in equity payments made by merchants to the grower.
marketing@alchempro.com
