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Record cotton crops, China driving price volatility

Don't expect the price volatility in the cotton market to go away, says a top cotton marketing expert. “People are scared to death,” says Ed Jernigan, president and CEO of Globecot and the Jernigan Group. “Last year they felt like they knew what was going on in China. This year people don't believe they know what's going on in China. One minute it looks bullish and they're buying and getting excited and if the Chinese back off, then it gets bearish.

“There will be a lot of volatility,” Jernigan told a group recently at a field day in South Carolina.

An anticipated record cotton crop all over the world, the U.S.'s role as a cotton exporter, and China are driving the price volatility. “One thing about this year that's totally different from any year since I've been in the business since 1978 is the price volatility,” Jernigan says.

“There's no question the world will produce a record volume crop,” he says. “It's coming from the U.S., China and India”

The U.S. will export record volume this year and it is estimated that China will import record volume. “The market is taking a very cautious approach to this,” Jernigan says. “When the market believes it, they get excited about prices.”

He doesn't believe prices will collapse. “I think there will be a tendency for strong demand below 45 cents in the futures,” Jernigan says. “It will face a lot of resistance on rallies up near 60 cents.

“I'm not a doomsayer, but I think we will face difficulties having extreme rallies, unless the China crop deteriorates even more than what it is today,” Jernigan says.

The cotton-marketing expert says two things came out of the bear market. One, with the U.S. textile industry gone, the U.S. has got to export cotton. The second caveat is, the futures contracts are out of touch with the marketplace.

China's timing in entering and leaving the market will also have an effect on price, Jernigan says.

In addition to China, a lot of the other exporting cotton countries haven't sold their crop yet. He says more than 4.5 million bales of African cotton has not been sold. “That's a bearish factor overhanging the market.”


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