Cleveland: Market Drops, Manages to Avoid Trouble Territory
November 13, 2012 Cotton futures settled the week at 69.58 cents, little more than a hair above technical territory that could spell trouble. The market flirted all week with bearish territory, but could never be converted.
Most of the week’s price work appeared to be setting up for a break below the technical support and, thus, suggesting a test of the 52 week low of 64.61 cents. Nevertheless, cotton is still cheap at 70 cents and thus far it appears mills are on the same wave length. The U.S. has enjoyed what is believed to be an export bonus or surprise in recent weeks when New York has slid below 72-73 cents. These heretofore unexpected exports, mainly to China, should show even more improvement and in the near term are expected to take prices back for a look at the 72-73 cent mark.
In the meantime we must wait on two things. Number one, cotton demand and number two, the extent of the so called external market factors. Price support points, should the 4-week/13-week low of 69.03 cents fail, are grouped between 68.78 and 67.98. However, these will offer only slim resistance if approached. The next major support level is the aforementioned 52 week low of 64.61.
Nevertheless, now that the peak harvest has passed it may well be that the major pressure to push the market lower has passed as well. Do not discount such, notwithstanding the call by some analysts that the greater price decline will occur in early 2013. The cotton price cycle suggests price improvement from late December into January, another sell off in early March, and then a climb at the beginning of the 2013 planting season. Regardless of the unbelievable 80 million bale world carryover forecast in USDA’s November supply demand report, the expected sharp decline in U.S. and world cotton plantings in 2013 does portend a price rally into the coming season’s planting period.
Too, export sales of U.S. cotton have continued to grow as the market slips. Mills, especially Chinese mills, have become very active in searching for U.S. cotton which is now cheaper than local cotton. Net sales of U.S. Upland for the week ending 11/1/2012 were impressive at 266,000 bales. China accounted for nearly half of the sales. Export shipments were 115,100 bales; again with about half destined for China.
The market focused little attention on last week’s release of the USDA November supply demand report. Finally, the market was able to enjoy a USDA report that very well expected a slightly larger crop accompanied with a slight increase in world carryover. U.S. ending stocks of cotton increased 200,000 bales, while world ending stocks increased to a record large 80.3 million bales. The U,S. crop, based on much improved yields in the Mid-South and Southeast, increased to 17.45 million, up 160,000 bales. Chinese domestic use fell by 500,000 bales. The Liverpool A-Index ended the week at 79.40.
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