Despite concurrent losses in the grain and soy markets Monday, cotton futures proved able to post modest advances. That almost surely reflected wire service reports that Chinese officials have resumed their policy of buying and stockpiling cotton in order to support their domestic market and help out farmers. This will almost surely add to their already massive holdings. For example, the USDA estimates the ending 2012/13 inventory reached 50.33 million running bales (480 lb/bale) at the end of the crop year.
Moreover, our nationΆs analysts now expect that total to grow to 58.26 million at the end of the 2013/14 crop year. The following chart puts those totals in context, showing the Chinese stockpiles as a percent of estimated global totals. Thus, not only was the 2013 result well over 50% of the global sum, itΆs expected to rise to 62.1% by next summer. One stroke of the pen in Beijing could release a great deal of that product to the global market, but until that happens, the underlying implication is that the rest of the world is actually facing a relatively tight situation. ThatΆs probably why futures rose Monday.
However, from a technical standpoint, bulls proved unable to push the most-active December futures price above chart resistance associated with its 10-day moving average (MA) at the daily close. A decisive breakout above that point seem likely to spark a quick test of chart resistance at the confluence of its 20 and 40-day MAs, which are located in the 86.00-86.35 cent range. Whether bulls will be able to do so is very much open to question.
That seems especially true after the weekly Crop Progress report released this afternoon stated cotton crop conditions rated good to excellent unchanged at 45% of the total. Acreage rated poor increased 1% to 12% of the total, but that seems likely to carry less weight with traders than the unchanged result for the high quality readings.