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Same Song, Same Tune – Market Sings the Low-to-Mid 60s Blues

The dog days of August trading continues on the eve of Halloween, as cotton futures remain channel-bound, bouncing off the lower limits of the price channel.

The same record I have been spinning for weeks is still playing and still looks to be the on the turntable for another month, or even more. Yet it is a bit dangerous to predict that far out, given that the world crop is coming in at such an abnormally slow rate.

Thus, for now the 61 to 62 cent price resistance holds firm, attempts to close above 65 cents continue to be thwarted, and the potential for a short covering rally lingers strong in the background.

The beginning of the week experienced another idea that the resistance would be tested, but the week’s end gave promise of the elusive short covering rally. Again, the short covering rally could give us a 68 to 72 cent price objective, but would be strictly based on technical trading by speculative funds. It would come without any (i.e. – nil/none) mill buying activity, as mills – beginning to show signs of digging their heels in even more firmly against higher prices – would all but totally walk away from the market.

As textile mills have slowed their buying interest at prices above 64 cents, cotton growers worldwide have all but walked away from selling cotton at the lower end of the price channel (61 to 64 cents). Granted, there are some exceptions, but those are mostly associated with abnormally strong basis positions enjoyed by some growers, and the occasional immediate need for cotton from a number of mills to help keep the doors open and the machinery operating.

These somewhat opposite positions – or rather, differences in opinion – are beginning to set in place a strong potential for head butting. While this activity is not new to the cotton market, we are reminded today that the world excess of cotton is all in China, while the world’s supply of quality cotton is mostly housed in the U.S.

The crops in Brazil and Australia are mostly spoken for, with the Southern Hemisphere harvest at least six months away. Thus, the U.S. export market should expand as the marketing progresses toward the summer of 2015. Too, the cash basis should remain relatively strong for good quality throughout the year.

Net export sales for the current week were 78,800 RB of Upland and 4,700 RB of Pima. Export shipments were 98,100 RB of Upland and 1,100 RB of Pima. Total U.S. export commitments have reached 5.6 million bales, which is 1.16 million ahead of year ago, same day sales. U.S. export shipments are a bit unseasonably slow. Yet, at current prices, there is little reason to fear cancellations.

The U.S. crop is receiving the open fall weather that traditionally allows for a bit larger harvest. The open dry weather will allow for increased harvesting and for the potential for the top crop to come closer to developing and reaching its yield potential. Nevertheless, the world crop is likely somewhat decreasing due to problems in both India and China, as well as flooding in Pakistan.

The trading channel will continue throughout November with the 62.50 to 64.50 range holding most of the trading activity.

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