Concern over the amount of cotton available outside of China continues to dominate trading.
What many considered a very bearish August Supply/Demand Report has been digested by market forces and determined to be market neutral. Most likely, the 62 cent price floor has developed enough depth to protect the price from sliding any lower.
Cotton prices attempted to consolidate a bit this week in the face of weather problems around the globe, as well as Chinese mills seeking imports of high grade cotton.
Market technicals suggest the 60 to 62 cent level will hold for prices in the very short run – depending, in large part, on weather patterns for Texas and India.
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.