By Dr. O.A. Cleveland

A 13-month price low was all the market could stomach, as it broke higher on end-of-the-week trading.

Just as the big bear was preparing to maul the market, prices jumped some 250 points higher before settling the week 169 points higher, basis the nearby March futures contract. Mills were aggressive buyers and helped rally the market.

Prices are now down some 22 cents from earlier highs and off about 12 cents from the beginning of the tariff dispute with China. Nevertheless, the bearish fundamentals do outweigh the ammunition held by the bulls.

As is our tradition, we like to begin the New Year with a listing of bullish and bearish factors facing the market.

Bullish

• Declining world carryover – typically a very forceful factor
• Declining Chinese carryover – typically another very strong factor
• Declining world production – another strong indicator
• A trend of increasing world consumption
• Smallest Indian crop in 9 years – an impending disaster
• India to import U.S. cotton
• Two largest producing countries reducing stocks – China and India
• Watch events in India – that crop disaster will likely impact trading worldwide

That comprises the major bullish factors facing the market. Typically, a listing of this nature would overwhelm any set of bearish factors. Yet, as the lyric goes, “The times, they are a’ changing.”

Bearish

• U.S./China trade war – agriculture and specifically cotton, no seat at bargaining table
• Two of the largest import markets effectively closed to U.S. cotton – Turkey and China
• China and Turkey account for some 4 million bales of U.S. cotton exports – drastic hit
• World’s two largest textile economies are reducing cotton spinning – India and China
• Dramatic slowing of Chinese economy
• Slowing of European economy
• Rapid expansion of Brazilian land area for field crops – explosion of cotton and soy
• U.S. facing a 4.5-5.0 million bale increase in production
• Rapid decline in crude oil price – reinvents the age of cheap polyester
• Pay careful attention to Brazil

No doubt one can ask a few more obvious points to the price equation. Yet, these are the primary factors. Trading in such an uncertain market has seen all traditional support levels fail, and the trading range has now dropped to the 70-72 cent level.

While a very bullish set of circumstance do exist (India), the market has found it much easier to fall than to hold what was thought to be very strong price supports points. The door is now open to see prices fall to the 64 cent level on a move back to 70 cents.

Give a gift of cotton today.