Well, we got a higher close for the front two contracts, but the deferred were all lower. ThatΆs not good. It suggests that while quality cotton is firming for export demand short-term, traders are becoming more convinced that the mountain of cotton held in reserve by China will inevitably start flowing out. And undoubtely, some believe China could shrewdly start selling deferred futures more aggressively before making that announcement; essentially “hedging” part of the government owned stocks.
The weekly crop progress and condition report was just released today because government was closed for VeteranΆs Day yesterday. The numbers neither help or hurt the outook: Harvest is at 56%, 10 pts behind the 5-year average and 17 pts behind last year. In a rising market that would be price friendly with producers likely to have priced all they need for paying bills and willing to store the rest unpriced. But in a steadily declining market like this, and producers very discouraged, a harvest running well behind normal may mean only thereΆs more than normal harvest selling pressure left for this market to absorb!
I said yesterday that cotton was at a very critical juncture, as shown on this long-term monthly futures price chart:
If we can launch a recovery from the recent downtrend from todayΆs close, it will establish a 3-pt long-term uptrend line. and set the stage for a test of overhead resistance in the 81-83 range on the spot futures contract.
But if the nearbys join the deferred contracts and resume their slow but painfully steady descent, and December closes below that uptrend line above, there will be no technical (chart) support until futures test those 2012 lows in the mid-60s!
IΆm still thinking these lows will hold now. While the world is awash in cotton, a huge portion of it is held by China and a huge portion of their reserve cotton is apparently of such low quality their own cotton mills donΆt even want it. The global demand for QUALITY cotton is actually very good and getting stronger. And the very fact that this market is sooooo sick with sooooo much cotton out there (if you count Chinese supplies) and sooooo many U.S. producers keenly aware of all this; my view is that the worse this market gets from here, the bigger decline weΆll see in cotton acreage in 2014.
Therefore, NO CHANGE IN ADVICE.