Futures market stumbles

“A dull affair” mostly describes the week of October 15-19 in cotton. December futures did post a three-week high and a high close Monday but resistance kicked in above 79 cents, and the balance of the week saw prices drift lower. December ultimately lost 45 points on the week to close at 77.92 cents.

The October 1 low of 75.37 has now stood for nearly three weeks, providing hope the harvest low is in, though it’s clearly too early to make that call. However, today’s CFTC Commitments of Traders report showed speculators were small net buyers during the week that ended Tuesday. This was the first uptick in the specs’ net long position in a while, so there was probably some bottom-picking going on.

There wasn’t much in the way of fresh fundamental news. Many of the industry’s top leaders were in Hong Kong for ICA’s annual meeting. The flow of information from the event seemed uninspiring. Most of the fresh business reportedly focused on non-U.S. growths. The keynote outlook presentation covered a list of familiar bullish and bearish influences without revealing a clear bias regarding future price direction.

Corn, soybeans and wheat all posted healthy losses this week. Energies and industrial commodities generally lost ground as well. U.S. stock prices basically held their own, but they certainly didn’t repair any of the damage done last week. Blame it on the now-familiar dynamic of sour trade relations and fears of a slowdown in the global economy.

In this environment, it wouldn’t have been surprising to see a more significant decline in cotton prices. Put another way, it may simply be the fear of as-yet unrealized demand destruction that is keeping the cotton bull down. After all, the current supply/demand numbers show a significant drawdown in world ending stocks for 2018-19. U.S. ending stocks are currently projected for a small increase. However, recent weather-related yield losses in the Southeast and West Texas may tip that balance.

As always, China is a big piece in the puzzle. In this week’s otherwise-unremarkable export report, the People’s Republic was responsible for the biggest numbers: current crop sales were net cancellations of 18,500 bales. Shipments of 33,200 bales were slightly ahead of second-place Viet Nam. Finally, China bought 17,600 bales of the total 24,200 bales for new crop.

Clearly, a renewed faith in China’s appetite for U.S. cotton would be a game-changer. For now though, the focus is on the U.S./Sino trade war and troubling signals from the Chinese economy. The downtrend in Chinese internal prices continued this week as traders anxiously seek signs of a bottom.

Technically, the futures market appears to be working on a potential short-term head-and-shoulders bottom. This is within the context of a technical situation that is long-term negative, so it’s no reason to get too friendly. However, if confirmed, this little bottom could kick off a correction to at least the low 80s. It might also convince traders the harvest low is, in fact, in.

If the nearby contract can get decisively above 84 cents, Taurus may go on a rampage. Today, that looks like a long shot, but a widely-read analyst recently likened cotton to a “bull market with the handbrake on.” Watch for signs the brakes are coming off.

The Pima market has likewise been quiet. Net sales on this week’s export report were only 5,000 bales; exports were 6,300. Quoted prices have stabilized at levels that would work back to about $1.30 at the grower level and haven’t changed in weeks. Harvest seems to be going well in the San Joaquin Valley and early classings reveal a top notch ELS crop. Cumulative U.S. sales this season total 236,500 bales, trailing last year’s 308,700 sold as of a similar date. Exports though are ahead: 59,200 to date versus 45,800 last year.

USDA’s October report cuts world stocks, increases U.S. output

There were some significant surprises in USDA’s October reports, but not necessarily any analysts were expecting, as world ending stocks fell over three million bales due to revisions in Indian supply/demand numbers dating back to 2002.

The U.S. saw slightly larger production, a cut to exports and higher ending stocks, due to various adjustments. One of the more surprising changes was the realization of 14.04 million acres planted, only 10.53 million will be harvested—essentially a quarter of planted acreage will not be picked in various areas, and that will likely increase after the latest hurricane damage is assessed.

The net impact of the report was slightly bullish in the futures market, which closed with modest gains. The report measures the situation as of October 1, so crop losses sustained in the Southeastern U.S. (rumored to be as much as a million bales) due to Hurricane Michael are not factored into this report.

In fact, overall total U.S. production was raised a net 81,000 bales to 19.76 million bales from the prior month though still over a million bales below last season’s 20.92 million bales. U.S. yield was up six pounds from last month at 901 pounds per acre but four pounds below last year’s—in fact, if realized, the U.S. average yield for all cotton and Upland cotton will be the second highest on record.

The report does seem to incorporate crop losses sustained in the Carolinas and Virginia due to Hurricane Florence, with yield losses of 117 pounds per acre in North Carolina, 83 pounds in South Carolina and 75 pounds in Virginia. Additional losses may occur in those states as well due to more rain and wind from Michael.

Georgia, which like the Florida Panhandle took the brunt of Hurricane Michael, saw its yield climb 34 pounds per acre compared to the previous month to reach a crop size of 2.9 million bales. Florida’s estimated 220,000 bales in 2018 will probably be reduced.

In this report, though, the Peach State was not the only state with higher production: Texas saw its crop climb by 200,000 bales to 6.732 million bales, though still 2.6 million bales lower than last season’s 9.3 million bales.

In the region with Texas, Oklahoma and Kansas, the regional yield tallied an adjusted 731 pounds, 20 pounds more than its five-year average of 711 pounds per harvested acre. Texas posted a 22-pound increase in its yield, compared to last month, at 716 pounds per acre, while Oklahoma yield was 783 pounds and Kansas topped the thousand-pound mark at an estimated 1,011 pounds per acre.

In the Far West, adjustments were mixed, as California’s Upland yield fell, while Arizona’s increased and New Mexico was unchanged. Combined Upland production in the West is an estimated 802,000 bales, with an estimated harvested area of 263,000 acres and a regional average yield of 1,464 pounds, 12 pounds less than the region’s five-year average.

Of that, California would contribute 172,000 bales on a yield of 1,685 pounds (down 78 pounds from last month) from only 49,000 acres, while Arizona’s yield moved up to 1,546 pounds per acre, or 48 pounds more than the prior month. That would result in a crop of 480,000 bales from 149,000 harvested acres. New Mexico posted an impressive yield gain over its five-year average, up 93 pounds to an estimated 1,108 pounds per harvested acre, and a crop of 150,000 bales from 65,000 acres.

The Pima crop was unchanged from last month at an estimated 771,000 bales. Harvested area was pegged at 245,000 acres with an average yield of 1,508 pounds per harvested acre, with California producing the bulk of that, 701,000 bales from 209,000 acres and some 1,610 pounds per acre.
Texas chipped in 32,000 bales, while Arizona with 25,000 and New Mexico with 13,000 filled out the rest.

The Southeast crop is an estimated 5.6 million bales, based on 2.83 million harvested acres and a regional average yield of 950 pounds, 80 pounds more than the region’s five-year average. The only state expected to see yields less than its five-year average was North Carolina, but again, based on reports from the region, significant cuts are likely ahead in Southeastern production following the most recent hurricane.

In the Mid-South, expected production was 4.63 million bales, with large yield gains in Mississippi, Missouri and Louisiana offsetting a slight reduction in Tennessee.

Domestic mill use is unchanged from last month, estimated at 3.40 million bales. Exports, however, were lowered 200,000 bales to 15.50 million bales, due to “reduced world trade and consumption,” USDA said. This generates a total 2018-19 offtake of 18.90 million bales. Ending stocks for 2018-19 are projected at 5.00 million bales, an ending stocks-to-use ratio of 26.5 percent, the highest since 2015-16.

The picture was different in the world supply and demand figures, as ending stocks fell three million bales to 74.45 million, down from 77.46 million a month ago.

World production was lowered 310,000 bales, with the bulk of the reduction due to a half million bale cut in Australia’s output from 3.0 million to 2.5 million bales.

World mill use was lowered 180,000 bales to a projected 127.76 million bales in 2018-19 but increased in 2017-18 to 123.27 million bales.
The really significant change came in India. USDA wrote in its report, “Stocks are lowered mainly in India, as revisions are made to production, consumption, and loss over 2002–03 to 2013–14 to better reflect Indian government data (consumption) and the impact of shifting producers’ marketing patterns.”

So instead of entering the new season with 11.6 million bales, India has instead only 8.7 million. Production and mill use were unchanged from last, so the season will conclude with 8.98 million bales. China’s figures were repeated from last month, but with beginning stocks of 38.02 million bale, production of 27.5 million, imports of 7.0 million and mill use of 42.5 million, ending stocks in 2018–19 will be 8.2 million bales lower at 29.87 million bales. That’s a substantial 48-percentage-point drop from the 56.7 million bales in Chinese beginning stocks in 2016.

New videos aid effort to eliminate contamination

It’s cotton-pickin’ time and it’s more important than ever for cotton producers to deliver contaminant-free cotton. The National Cotton Council has created and made available two excellent videos to help growers to achieve that goal.

The Council urges producers, ginners and industry members to make seed cotton/lint contamination prevention the highest priority and these comprehensive educational videos are available in English and Spanish.

The English version can be viewed at https://youtu.be/GKnNTc3Qmxwin.

The Spanish version is available at https://www.youtube.com/watch?v=53lcKIaj2ts.

Other resources are at http://www.cotton.org/tech/quality/contamfree.cfm. The Council has also mailed USB drives with the videos to every gin in the country.

91st annual meeting acknowledged challenges

The 2017-18 marketing year was not an outstanding one for its members, Calcot Chairman Greg Wuertz announced at the co-op’s 91st annual meeting September 25 in Phoenix, Ariz.

“I must be blunt: our results for 2017-18 were not what I was hoping to see,” he said, referring to the marketing results of Calcot’s Seasonal Pool. Many members with cotton in the Call Pool did fairly well, but “the strength of a Seasonal Pool should be one that produces results reflective of the current marketing year for its participants, and we fell short,” he added.

He said there were varied reasons for the final performance: weather woes, fluctuating volume, changing crop mixes. Regardless, changes are necessary, Wuertz said.

“We must have a robust Seasonal Pool to accomplish our marketing goals,” he said, and changes are on the way to improve performance. One major change has already occurred with the election of Paul Bush as the eighth president of Calcot. “We were fortunate that we had an excellent candidate already on staff,” he said.

Bush announced a distribution of $3.058 million to members as the season’s final payment, which was allocated as 113 points to all Upland bales in the Seasonal Pool, regardless of quality or origin.

Pima cotton fared better in seeing a final payment of nine cents per pound, and Call Pool ELS bales also received three cents. There were no further payments in the Call Pool or Spot Fixation.

Bush said the season’s results weren’t “quite as bad as [the chairman] characterizes it, but no question it could have been better. In fairness, it was a challenging marketing year with unusual circumstances.”

The season’s results weren’t all disappointing, Wuertz said. Efforts to sell the Hanford warehouse complex were ultimately successful and allowed Calcot to return to eligible members five years’ worth of retains totaling $9.5 million and shorten the investment frame for retains beginning with the current season to three years. Also, the usual secondary retain of $1 per bale was eliminated and wasn’t collected on the 2017-18 crop.

Bush said, “We were able to do this because all in all, Calcot as a cooperative business is in excellent financial shape. We have spent considerable effort and focus on improving the company’s finances. Candidly, I think we’ve lost some direction and consistency in focusing on grower-member finances, and my goal is to improve that.”

The new president noted Calcot has loyal and long-serving employees who are assets, as well as facilities well suited to reap benefits available from export markets. And he plans to “set a new course.”

“Over the next few months I intend to spend much of my time getting around our production areas, meeting one on one with members in conjunction with field staff,” Bush said. “I can’t promise we can work miracles, but we can be better, and do better, and I know we will work very hard to give cotton growers the cooperative they want and deserve.

“There is much to do, much work to be done, and I look forward to the challenge, and to reporting better results to you next year.”

Wuertz observed several achievements: the cooperative received its 70-millionth bale in late November, recording a significant milestone in its 91-year-history. Calcot also handled about 30 percent more bales in ’17-18 than in the previous season, despite the impact of Hurricanes Harvey and Irma in Texas’ cotton production. New acreage from memberships for the ’18-19 season was about triple the prior season.

Chairman Wuertz also recognized longtime Glendale office manager Connie Comfort, who retired October 1 after 36 years with the company, and welcomed Daniel Parziale as the new office manager.

Don Ecker of Eadie and Payne, which audited Calcot’s financial statements, reported the co-op had total assets as of August 31, 2018 of $97 million. Working capital was a healthy $24 million. “Calcot’s financial condition is good and continues to improve,” Ecker said.

Also reported were results of recent elections: California directors Thad Stephen, Jeff Mancebo, Sam Carreiro and Tim Thomson were all re-elected to three-year terms.

In Arizona, Brad Harrison and Andy Harter were also re-elected, as were Keith Deputy and Harvey D. Hilley, Jr., in New Mexico and Far West Texas. Additionally, Walt Franke, Jonathan Krenek and Lonnie Kellermeier were re-elected as well.

Newly elected was Jeff Larson of Thatcher, Ariz., in District 10A, replacing Ron Howard, who stepped down from the board following 12 years of service.

Also elected to one-year terms were directors at large Michael Brooks, Steve Coester, K.C. Gingg, James Johnson, Melvin Pereira, John Pucheu, Jack Seiler and Jon Whatley.

Paul Bush: new Calcot president

Paul E. Bush is the new president of Calcot, Ltd., the Bakersfield, Calif.-based cotton marketing cooperative. Bush, a 19-year veteran of the company, was previously vice president of Southwest U.S. operations, and was elected president by the cooperative’s board of directors.

Bush assumed his new post September 1, 2018, succeeding Jarral T. Neeper, who exited after a nine-year term as the co-op’s president. Bush is the eighth chief executive in Calcot’s 91-year-history.

Paul E. Bush

Paul E. Bush

Calcot Chairman Greg Wuertz of Coolidge, Ariz., thanked Neeper for his years of service, loyalty and a number of initiatives. But going forward, Wuertz said, it was time for a new direction.

“I believe Paul Bush brings considerable experience to the company and speaking on behalf of the board and membership, we’re excited to have someone of Paul’s caliber as president for 2018 and beyond,” Wuertz said.

In his new role, Bush answers directly to Calcot’s board and is responsible for guiding the grower-owned cooperative association in its efforts to maximize returns on producers’ cotton, as well as other business endeavors.

As vice president of Calcot’s Southwest U.S. operations, Bush was responsible for all operations of the Glendale, Ariz. office, including inbound traffic, warehouse operations and providing Calcot members and gin managers with information critical to their marketing needs. He oversaw recruiting memberships and complete operations in Southern California, Arizona, New Mexico and Texas.

Bush, 51, was named vice president January 1, 2007, following eight years as a field representative serving the same areas. Prior to Calcot, he served as gin manager of 11 – Mile Corner Gin for Chickasha Cotton Oil Co. in Arizona.

Before that, Bush managed Bluebonnet Warehouse for four years for King Ranch, Inc., in Galveston, Tex., and for three years was accounting manager for King Ranch’s Arizona operation.

A Kern County, Calif., native, Bush holds a bachelor of science degree in agricultural economics from the University of Arizona in Tucson, graduating in 1989. Post-graduate work included a six-month graduate assistantship at Texas Tech University in Lubbock, Tex.

Involved in cotton industry affairs, he was a board member with the Cotton Warehouse Association of America in 1996-97 and is currently serving as a warehouse delegate to the National Cotton Council. Bush is also a graduate of the Council’s 1999-2000 Cotton Leadership Program.

Bush has remained active in University of Arizona (U of A) alumni affairs, currently serving on the College of Agriculture and Life Sciences (CALS) Alumni Council and was recently appointed to the newly formed CALS Career Center Advisory Board. He was awarded in 2012 the U of A’s “Bear Down Award” by the school’s Alumni Association, recognizing service to the institution.

Bush and wife Nancy currently reside in Cave Creek, Ariz with sons Hayden and Cody. Son Wyatt is currently a junior studying architecture at Arizona State University.