Cotton futures put in an ugly performance Monday. Prices had actually risen slightly in early trading, to which one could probably credit the early combination of U.S. dollar weakness and equity gains. The currency slippage implies lower costs for the white fiber when it is offered on the international market. Conversely, equity strength is traditionally seen as a harbinger of future economic growth, so it seemed rather easy to credit those shifts for the ICE futures firmness.
However, cotton prices clearly turned downward later in the day, which was truly surprising. One could certainly blame the late setback suffered by the equity markets, but the dollar weakness and the seeming buying surge that hit the commodity markets as the precious metals led the way back from early lows appeared designed to boost the cotton market as well. The reason it turned downward instead was not obvious, but I have to wonder if traders were expecting a major surge in cotton plantings on the weekly Crop Progress report released after the close.
The chart above puts the USDA result, at 39% complete, in context, showing farmers did very well in getting cotton seeds into the ground last week. That is well behind comparable year-ago and long-term average results, but it may actually have fallen short of industry estimates of accelerated activity last week. From a technical standpoint, the nearby July future is stuck between chart support and resistance associated with its 20 and 40-day moving averages, respectively. Whichever way it breaks out of that range could set the tone for late spring trading. Unfortunately, we see few clues indicating which way it will move in the short term.