By Keith Brown, DTN Contributing Cotton Analyst 

The cotton market was steeply lower Monday as economic rumblings out of China unhinged many of the world’s financial markets. The Hong Kong market was off 4%, while the Dow Jones was down some 800 points at the time of cotton’s closing. Some analysts believe this Chinese $300 billion default real estate problem may test the soundness of its banking system.

Monday afternoon USDA will update the harvest and condition ratings of the crop. Of course, harvest is hardly underway, but last week some 5% of the 2021 crop was gathered. Regarding the crop’s condition, Texas is reputed to have a huge crop, but the Delta and Southeast have been banged by winds and rains from various events for many weeks. Thus, the overall good-to-excellent condition of the nation’s crop may slide. The 10-year average for this time of year stands at 45% good to excellent.

Tuesday starts day one of a two-day meeting for the Federal Reserve. The Fed will decide whether the U.S. economy is strong enough to withstand a reduction in government stimulus. A “yes vote” for tapering would likely be bullish for the dollar and bearish for commodities.

A big concern for cotton traders is the burdensome net-long position carried by the managed-money funds. Their 10-year net-long high is 108,000 contracts, while their most recent update had them at 91,900-plus net long. If that group elects to downsize their bullish position, things could become hairy for the cotton market.

For Monday, December settled at 89.02 cents, down 3.31 cents, March ended at 88.39 cents, down 3.20 cents and December 2022 ended at 80.27 cents, 1.86 cents lower; estimated volume was 55,352 contracts.