Cotton prices remained under pressure this past week. But the downtrend was flat, indicating that the market is ready to start curing low prices.
With December futures, a drop to 65 cents is all but certain. But this week’s export sales report indicates a major sales increase in the face of declining prices. And, the sales report for next week should be just as strong.
Once the cotton market realized a squeeze on the July futures contract would not occur, prices crashed as if they were Humpty Dumpty. Open interest has fallen to its lowest point in 30 months.
The past week’s roller coaster ride in July prices was more about end-of-year book balancing and end-of-game bluffs and calls rather than about the supply and demand of cotton, creating a total disconnect between futures price and cash price.
As the bears continue their month-long rule of the cotton market, upgrades and investment in Chinese mills are driving demand for machine-harvested, high grade foreign cotton.
As expected, rain in Texas sent prices three cents lower almost immediately. The market is now down in both the July and new crop December contracts, and is attempting to hold the line on any further price decline.
The million dollar rain came. And cotton prices were on the defensive all week as prices moved lower by the day.
During a period when everyone predicted extreme volatility, the cotton market was calm. Possibly, this truly is the dark before the dawn.
Old crop prices slipped some 200 points on the week, and the new crop December contract settled marginally higher. Thus, the market was a wash during the week despite trading through triple digits most days.
Cotton prices settled 100 to 200 points higher on the week as bullish fundamentals continue to build and speculative funds add to their already bullish positions.