Cotton Market Holds Steady in a Quiet Week
September 23, 2013 They may have been making lemonade in New York last week. They certainly were not trading cotton, thus there must have been a bit of squeezing going on. The week was the quietest in some time. The Chinese were on holiday and, thus, the market was too.
Futures activity was painfully slow as physical trading took a back seat. Nevertheless, the market crusaded against every attempt to take it lower. Selling was nonexistent, as was buying. The few attempts to move prices were done on very light volume.
Of course, all of that could have been said with the simple phrase “the market was dead all week” (however, being an economist, I must fill up at least one page). The 81-88 cent trading range, as it has for some time, remains on solid footing and should continue to do so into the peak harvest period.
The shining star – if there is one – is that the market has resisted every attempt to move lower. It had been thought that the 90-cent top could not be scaled, but it was, even short lived as it was. The point being, the market did have a run above 90 cents. Most have expected a drop down to the 77-to-78 cent level, and it should not be written off. However, the 81-to-82 price support level has been extremely resilient in defending its position. The major buyers – Turkey, China, Mexico, Bangladesh, Vietnam and others – have been very good on any attempt to force prices below the 83-to-84 cent level. Thus, the market has defended the bottom of the price range with much more vigor than the top of the range.
The speculative funds were the primary force that moved prices above the 90-cent mark. Not being able to sustain a run to 95 cents, the funds bailed out, and market prices fell like a rock to just below 84 cents before uncovering enough mill demand to halt the price slide.
The funds appear to have taken their profits and are now building another layer of long positions in hopes to move prices higher. This move, unlikely to push above 87-to-89 cents, will be slow to build as the harvest season approaches and more and more cotton will come to the market. However, the world crop appears to be shrinking by the week. This, too, will help keep the market above its 81-to-82 cent support level.
And, the Chinese government is once again buying its countries production near the 160-cent level. Granted, they are more quality conscious buyers this year.
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