Wire service reports released early Tuesday morning indicated that April Chinese cotton imports had fallen 18% short of the March total. Sources cited high international prices and the recent Chinese government policy of pushing old product out of their massive stockpile and onto their domestic market for the slowdown. When combined with the huge 2013/14 inventory increase forecast by the USDA on its WASDE report last Friday, it was not at all surprising to see ICE cotton futures suffer modest losses soon thereafter. Indeed, it is probably a testament to the general optimism about the cotton outlook that futures did not decline further in early trading.

On the other hand, a significant portion of the bullishness toward the cotton outlook is based upon anticipation of general economic strength. And while there seems to be a growing disconnect between actual economic performance and the implicit forecasts being made by stock prices, it is rather hard to argue with record highs in the equity indexes at this juncture. The blue bars on the overlay chart above represent the ongoing advance by the S&P 500 index, while the green/red candlesticks illustrate recent shifts in July cotton values. Their general tendency to move in concert is hardly a coincidence, although bullish traders have to have been disappointed by the March-April cotton slide. We cannot say we are especially bullish toward the cotton outlook at this juncture. But the potential for reduced U.S. plantings driven by excess rainfall in some areas and drought in others is very likely playing a role in supporting the market. Moreover, the robust economic outlook implied by soaring equity values seems very supportive of demand for apparel and the cotton it would be made from. On the other hand, July cotton has not proven able to sustain a move above its 40-day moving average lately, which may bode ill for short-term technical prospects.