The NY cotton futures market was down 394 points for the week from Monday's 72.06 open to Friday's settle at 68.12. Without a doubt the USDA WASDE report was bearish and the market took a quick dive once the report was released.
They finally made a sizeable adjustment to their numbers, something the USDA is not known to do, which better reflect the current situation in the U.S. Their current production number is 16.5 million bales for the U.S. crop, up from 15 million, and an ending stock of 5.2 million, the largest since 2008/09 if that number is reached. Their rest of the world ending stocks number was also up by 2 million bales.
With this news coupled with the fact that the market blew through the "resistance" at 68.25, producers are looking at prices close to production costs in some cases. The next level of support is around 66.00. More than likely, most farmers will not sell but use the loan to buy more time and hope for a better price.
However, at 52.00, could it make sense to sell now and buy some calls to take advantage of any market upside? Seems reasonable but that is not an easy decision for the farmer. In the U.S. they have access to all the potential subsidies, adjusted world price (AWP)/NY market spreads, etc. that could impact their final payments. Producers in other countries may need to think hard about the sell now buy calls, but they better think quickly.