Cotton futures reportedly took an early hit from news out of China Thursday morning. Industry sources cited a disappointing result on the monthly HSBC PMI (Purchasing Manager Index), as well as talk of accelerated selling from official stockpiles, for the overnight weakness. However, that slippage only served to set the stage for the negative results posted on the weekly USDA Export Sales report.

It stated commitments for last week at 101,700 running bales. That seemed supportive at first glance, since it topped the comparable week prior total by 37%. On the other hand, it fell 45% short of the average for the previous four weeks, which says a great deal about the weakness of sales posted both last week AND the week before. In addition, the latest shipments total, at 232,900 bales, fell 24% and 28% below the comparable week-ago and four-week average results, respectively.

I would also agree with those who argue that the Thursday cotton breakdown had a significant technical component. As pointed out earlier this week, the July future fell decisively below chart support associated with its 20-day moving average on Tuesday. Bulls probably took some comfort from the fact that it close above its April lows yesterday, but this latest drop almost surely put an end to ideas that the market will rebound substantially in the near future.

Indeed, the July close at 81.78 cents/pound left the nearby contract at its lowest level since it broke out to the upside in late January. As a consequence, it is rather difficult to avoid the idea that July cotton will test the 78.00-cent level at some point in the not-too-distant future.