By Jeff Thompson 

It’s been a few weeks since my last commentary. With the market content to trade in the low 60’s, there has been little to report. Though it’s now on the high side of this range, gaining four cents in October, without much conviction. Dominated by technical trading, volume has been rather low. Activity this week, however, did stir some optimism especially among the chartists. Cotton prices closed above 65 cents for only the second time since early July. The question now becomes can it build off this breakout or fall back as in the past. Like the belle of the ball wandering aimlessly around the dance floor in search of a partner, the market is looking for something to give it direction. 

Herein lies the rub. Recent gains were largely the result of specs and funds liquidating previous short positions. News of an impending trade settlement with China and the potential for a smaller U.S. crop encouraged profit taking. Though providing pricing opportunities for those looking to fix cotton, this alone isn’t enough stimulus to sustain higher prices. Such momentum will require an improvement in cotton fundamentals, most notably consumption. The demand for cotton fiber continues to be weak. For this reason, we are cautiously bearish and skeptical prices can hold this level. Keep in mind, it was only eight weeks ago the market closed at 57.82, with fears it was heading lower triggering a POP or LDP. Cotton fundamentals have not significantly improved since that time. 

Weekly export sales have been dismal. Last week only 108,000 bales were sold. This was a decline of 32 percent from the previous week’s disappointing sales of 140,500 bales. On a positive note there was no sign of cancellations, especially by China. This is very important and being monitored closely. The U.S. is sitting on almost 2 million bales of cotton purchased by China last year, but not yet shipped. If this cotton, bought at much higher prices, is either cancelled or rolled into this year’s purchases, it would wreck the supply/demand balance sheet - likely sending prices spiraling downward. 

On the eve of freezing temperatures across many parts of the cotton belt, the U.S. crop is certain to get shorter. The return to more normal rainfall patterns has not only hindered harvest efforts but will lower fiber quality going forward, as well. Fortunately, earlier progress along with exceptional yields will serve to offset much of these late season losses. The most troublesome area is West Texas where less than half the crop has been stripped. 

All eyes will be on next week’s USDA report to see if our crop estimate is reduced for a third month in a row. As said before, increased demand is vital to sustaining any price rally. Demand, in turn, is dependent upon healthy economic conditions to foster consumer purchases. The U.S. economy continues to appear sound as the GDP expanded at annualized rate of 1.9 percent in the 3rd quarter. Most of this growth came from consumers whose household spending accounts for more than two thirds of the GDP. In addition, the Fed this week cut interest rates for the third time in a year to insure our economy against risks like the trade war with China and the 2020 elections. What’s needed now is economic stabilization and growth in other global economies. Hopefully, renewed trade between the world’s two superpowers will provide the impetus for this to occur. Until then uncertainty will continue to rule our markets. 

Until next time