"Bloomberg News (BN) Date: Nov 5 2018 13:40:00
Cotton Production, Inventory Survey Before USDA WASDE Report
By Dominic Carey
(Bloomberg) — The following table shows results of a Bloomberg News survey
of as many as eight analysts for the USDA’s World Agricultural Supply and Demand
report on the 2018-19 cotton crop, which is scheduled for release at noon in
Washington on Nov. 8. Figures are in millions of bales.
2018-19:| Avg | Low | High | Oct.
US Production | 19.21| 18.65| 19.75| 19.76
US Exports | 15.25| 14.80| 15.50| 15.50
US End Stocks | 4.62| 4.15| 5.10| 5.00
World Production | 120.82| 120.00| 121.50| 121.66
World Consumption | 127.45| 127.00| 128.00| 127.76
World End Stocks | 74.16| 72.85| 75.00| 74.45
Analyst |————U.S.————| World
| | | End
Estimates: |Production |Exports |Stocks |Production |Consumption |Stocks
Cottonexperts.com | 19.46| 15.00| 5.10| 120.66| 127.00| 74.00
Doane | 19.00| 15.50| 4.15| 121.00| 128.00| 74.00
Love Consulting | 19.20| 15.50| 4.60| 121.30| 128.00| 74.50
Price Futures Group| 19.55| 15.50| 4.75|n/a |n/a |n/a
Rabobank | 19.30| 15.20| 4.84| 121.00| 127.40| 74.20
Rose Commodity | | | | | |
Group | 18.75| 15.00| 4.20| 120.25| 127.25| 74.55
Varner Bros. | 18.65| 14.80| 4.59| 120.00| 127.00| 72.85
Wedbush Securities | 19.75| 15.50| 4.70| 121.50| 127.50| 75.00
Copyright (c) 2018, Bloomberg, L. P."
So, the average guess for US production (excluding the Wedbush #, which I discovered isn't a valid guess) is a drop of ~630K bales to 19.13. My educated guess is that the lower end of bolded US production guesses has a much better chance to be closer than the higher end. I've already posted several times with confidence that I think 4% is going to be the minimum reduction (4% would take it to near Doane's 19.00) with even a near record tieing Nov USDA 6% drop quite doable, which would put it near Varner's 18.65. So, my prediction is for the 18.65-19.00 range with a miss of this range being more likely to be lower than higher. Of course, there are other very important numbers to be released in the WASDE.
Today was a strong day for CT with the highest close for a Wednesday, the day before the weekly export sales report, since Sep 12. Volume was quite high. The combo of a very strong Dow, weak dollar, and election results were likely the main culprits though short covering/buying ahead of the USDA may also have been an influence of note.
Tomorrow is the AM weekly export sales and the monthly USDA production/WASDE.
The factors that you mentioned were likely important. I was actually guessing that the cotton market might be pretty strong ahead of the expected report tomorrow and was thinking today's strength was mostly from that.
I was considering my first USDA report position in over a decade for awhile, being long ahead of the report but talked myself out of it because of the uncertainty.
But its been your comprehensive analysis that has me feeling this report will be bullish and result in a spike higher after the release.
You have only been reporting the objective data, the above interpretation is mine, not yours.
However, there just seems to be too much uncontrolled risk to do this.
It's not like buying CTZ at 79c and risking to 78c for instance. The volatility after the release of the report could be incredible. Maybe a stop at 78c gets filled closer to 77c if the report is bearish?
Or we have a knee jerk spike up and down, with the down spike hitting the stop, then going higher.........or vice versa.
I remember the days YOU would use your weather knowledge to magnificently 'play' the NG market during the hurricanes. Had you only an hour before a report with only one day to option expiration, I am confident you would have exploited your (perceived, then actual) knowledge.
Perhaps I place too much confidence on THE weekly cycle having been determined WITH two tests AND Larry's fundamental analysis.
I believe my risk/reward with soon to expire options will be rewarded.
MY 'TRADING' style is NOT for everyone. Be mindful of your own due diligence!!
Thanks for the kind words and bringing back some fond memories. You've been around the block a few times too and we are still here.
I mainly watch the grain reactions on the release of a USDA report but today, I'll be most interested in cotton.
If what we have discussed here shows up on the report, I'll guess that we'll spike above 80c immediately upon the release.
One would think that the massive deterioration in conditions will lead to a low end production number but, not being a cotton expert, maybe some of that is just more poor quality cotton, which will be counted in production............and lead to a higher number than expected(by me) than just based on the crop condition/rating.
Cotton production down 7% and we got the spike higher above 80c right after the release.........but we can't add to those gains, at least not in the first 10 minutes as we went down and tested the pre report prices.
The high of 80.50 is some very major resistance going back to the downside breakout a couple of months ago when it was major support.
Extremely bullish. First of all, US:
US production dropped 7%, which was 4%/800K bales more than the Bloomberg industry survey average of 3% (7% is new record high drop for Nov report beating 6% of 1974). Exports did decrease 500K bales, but a 250K bale decrease was projected. So, exports were only 250K to the bearish vs the 800K to the bullish for US production. So, a net 550K to the bullish. Ending stocks came in at 4.30 million bales (MB) vs 5.00 last month and 4.65 for the Bloomberg survey average.
Now the World #s:
World production came in at 119.39 MB, a whopping 2.17 MB/2% drop from last month and 1.43 MB under the Bloomberg survey's avg of 120.82 MB. World usage did come in somewhat bearish at 126.88 MB, which is 880K less than last month and 570K less than the survey. But the net result of those 2 was 860K to the bullish vs the survey. Related to this, world ending stocks came in at a very bullish 72.61 MB vs last month's 74.45 MB and the survey average of 74.16 MB.
If cotton was trading mainly off of this, you would think that it would be well above 80c and even close to limit up if it was trading purely off of this.
My guess is that 80c cotton, which is near 5 year highs is just very expensive.
That's why I normally stick to predicting reports, which are pretty scientific/fact based and fun, rather than trying to predict market movements, which have the human element and other unpredictable elements. However, one thing I will sometimes do with regard to market movements is to look at past history of mkt reaction to reports like the USDA. I may post more about this later.
Edit: One thing to note is that the dollar was sharply up today and the stock indices were down modestly much of the day, both of which are typically bearish when CT trades off of them. Despite these bearish elements, CT did rise to the highest since 9/18.
From Michael: GA was cut 950K (33%), AL was cut 240K (21%), and FL was cut 75K (38%). So, the total Michael related cuts:
1,265 KB or 1.265 MB or a whopping 6.4% of the entire US crop.
How does Michael compare to other hurricanes since 1970? The damage in %/# of KB is way above any other single storms on record. Actually, based on records of past hurricanes , this storm likely did the highest % damage at the very least since the major H of 1898:
Worst US CT crop % damage estimates from a hurricane back to 1970 based on my own calculations:
1. Michael 2018 6.4%/1,265 KB
2. Floyd 1999 3.0%/530 KB
3. Matthew 2016 2.6%/410 KB
4. Gustav 2008 2.2%/300 KB
5. Irma 2017 1.8%/400 KB
6. Opal 1995 0.9%/175 KB
Imagine where the price would be if not for these record losses in production!
SAD. Did not know I had to know the direction of SPX to trade cotton
CT being strongly affected by equities is nothing really new. But not only are equities down strongly, but the dollar is up again after a very strong day yesterday. With the 25% China tariff, the higher dollar is extra negative for exports. Also, today being options expiration could be playing a part. It certainly isn’t the USDA Production report, which was about as bullish as one could imagine!
My guess is options expiration and we might be higher on Monday.
This is what happened a month ago the day that CT options expired.
Also think that 80c cotton is very expensive. Only the price spike 8 years ago caused cotton prices to be well above 80c and they were back down close to that level a bit over a year later.
Cotton 10 year chart below
Cotton 5 year chart below
Once again, there was earlier weakness followed by late buying. The late buying was pretty impressive lifting Dec 90-100 points off its bottom.
Maybe today was as Mike thinks down as much due to options expiration as anything else, but I'd call it a combo of that with the weak equities and strong dollar.
I have stats I may post later regarding price reactions to past Nov USDA reports. They're rather interesting.
Relationship between Oct significant reduction in US G/E less P/VP and Nov USDA US crop reduction incorporating Nov 2018:
-19 in 2018: USDA reduced 7%
-10 in 2009: USDA reduced 4%
-8 in 1993: USDA reduced 4%
-5 in 2010: USDA reduced 2%
-4 in 2008: USDA reduced 1%
Relationship between significant Oct reduction change in US E less VP and Nov USDA US crop reduction incorporating Nov 2018:
-16 in 2018: USDA reduced 7%
-4 in 2009: USDA reduced 4%
-2 in 1993: USDA reduced 4%
-1 in 2010: USDA reduced 2%
-1 in 2008: USDA reduced 1%
The overall lousy harvest wx continues with several inches of snow expected tonight into tomorrow morning in the N portion of the NW TX CT belt (mainly N of Lubbock) and lighter but still accumulating snow further south into and S of Lubbock being forecasted. SW OK will also be affected. Also, the SE US has been very soggy nearly the entire November and additional heavy rains are forecasted over the next few days. This s will affect what was not already lost of the unharvested GA, AL, and FL crops as well as the unharvested Carolinas crop. GA/SC and NW TX/OK still had a lot of unharvested crop per the last weekly report.
Important to note is that Nov is normally dry in these areas and therefore is typically good for harvest. However, El Nino is enhancing moisture bigtime.
My system is sideway,pointing to bearish on weekly and monthly
There will be no weekly progress report today due to the holiday. Tomorrow's will report CT harvest progress though no crop condition. The amount of rain in the main GA cotton regions has been way above normal this typically dry month (rain most days) and more is falling today into Thursday including heavy amounts for many. With that being the case, I expect the harvest progress reported on tomorrow's as well as next Monday's report to show very few field work days and a resulting falling behind on the GA harvest. Last week's report had GA at 53% vs 54% 5 year average. The report to be released next Monday will have 5 year averaged harvest % near 73%. I believe GA will be hard pressed to even reach 65% on that report and it may even be only near 60%. This open boll/harvest season from AZ through TX/OK/KS and then in the SE US has been one ugly one due to 2 hurricanes, heavy/persistent rains, an early hard freeze (NW TX), and cool, damp (NW TX/SW OK/AZ) though the Delta and Cali did/are doing pretty good.
Today, CT fell sharply due to the often bearish combo of a strong dollar and a very weak Dow along with no end in sight in the China/US trade war. Further drops may occur in the coming weeks due to these items though I'm not making a trade recommendation. The combo of bearishness due to weak export demand and bullishness of significant Nov cuts in US/world production that may get cut even more in the Dec USDA makes this an interesting market to follow with a lot of dynamics/cross currents in play.
CT US harvest update: now 54% vs 61% 5 year average... so falling further behind
11/11: 54% vs 61% 5 yr avg.
11/4: 49% vs 52% 5 yr avg
10/28: 44% vs 43% 5 yr avg
10/21: 39% vs 33% 5 yr avg
So, over the last 3 weeks, only 15% was harvested vs 28% 5 yr avg meaning harvest rate was only ~1/2 of the rate of the last 5 year average due to the very poor weather (that is still continuing this week, too..so expect slow harvest progress again in next week's report )
At only 54% harvested as of 11/11/18, this is the 2nd slowest since 1985 and is slowest since 2009:
1990-4 average: 71%
1985-9 average: 60%
Thanks again Larry for another amazing statistical analysis. Even more amazing is the lack of the cotton market caring enough to go higher.
Today and yesterdays low of 75.62 were not much above the September low of 75.37. December cotton has not traded lower than that since back in February of this year.
One would think that this is good support but I can also imagine a ton of sell stops below this.
A market that is near the lows with the most extremely bullish supply news ever for this time of year, over the past 6 weeks. It has been a wonderful learning experience for me......watching and you doing much of the work.
My guess is still that 80c cotton, in a globally traded environment must be too expensive, even if you take away massive supplies.
The demand/China thing isn't helping any.
Where would the price be if we hadn't lost all this supply?
Other thoughts are very welcome.
This is what happens to cotton when its left out in the field:
Here is a wonderful comprehensive discussion about all the bad things that happen to cotton which is subjected to conditions that are too wet during harvest season:
COTTON PHYSIOLOGY TODAY
You're welcome, Mike.
Below are some farmer comments from the very soggy SE from today's state reports. Keep in mind that this is just as of Sunday and there have been/will be daily rains though Thursday morning this week. With all this in mind and the US crop's slowest harvest since 2009 as well as 2nd slowest since 1985, odds are increasing for another USDA crop cut next month (though not nearly as large of course) as well as decreased average quality:
"Rain delayed the harvest of cotton, peanuts, and soybeans as the crops continued to decline seasonally. Some soybeans and peanuts sprouted. All livestock producers fed hay. Brent Allen, Washington County
Recent heavy rains slowed cotton and peanut harvesting. Farmers continued to deal with the impacts of Hurricane Michael. Luke Crosson, Calhoun County
All of the remaining cotton in the county started to lose quality from daily heavy rains and from being defoliated for more than two weeks. Justin Shealey, Echols County"
2. AL: (these 3 counties were top 16 CT in AL in 2017)
"Cotton and soybean harvest came to a standstill this week. Rain and wet field conditions prevented any progress with the harvest. Jeffrey Smith, Elmore County
Wet weather continued to contribute to losses in peanuts and cotton in the Wiregrass. Rainfall has been in such abundance in Houston County that it is causing extended delays in harvesting peanuts and cotton. Yields and quality continue to suffer in this unusual wet period. Willie Durr, Houston County"
Monroe County has been wet this week. Not a lot of huge rains but enough to keep producers out of the field. It has not been a good season for our cotton producers. Harvesting has been a challenge due to rainfall, fog, and no sunshine. Karen McDonald , Monroe County"
3. SC: (these were 2 of the 3 top SC CT counties in 2017)
"Continued rainfall has hampered the end of the harvest season. Fields have not been able to dry out before the rain comes and the quality of the final harvest is in question. Charles Davis, Calhoun County
Soybean fields still have some greens stalks in them. Some of the beans are showing some decrease in quality. Fall greens were looking really good. There is much cotton to be picked. Mark Nettles, Orangeburg County "
December cotton held its October lows.
Tuesday could have been daily cycle low. Fundamentals support seasonal cycle low timeframe.
Tell me when Pres. Trump and China kiss and make up!!
Did we get a tweet suggesting a kiss might be coming?
Would NOT care to be short. THE seasonal low appears to be in; a daily cycle low thereafter held and my one 76 call, now a future, is gaining.
Fundamentals strongly support rally, and the technical preceded the same. Besides, my 10 calls are gone!