By Dr. O.A. Cleveland
Special for Bayer CropScience
And the pressure is on! U.S. export sales, over the past two weeks, have exceeded two million bales. The market, in its wisdom, has responded with two consecutive days of limit down moves. That is, the market is eight cents lower in just two days. Yet, the remarkable feature is that prices remain in the same price range that it has been trading since September, the same one with the 94-95 cent support and the very solid resistance at the 105-107 cent level.
The market will spent the weekend sitting atop the 94-95 cent support level and should have enough energy to begin to bounce back on Monday as China still has considerable more buying. Some feel the Chinese buying is now done and will not come back for more U.S. cotton. Do not discount the possibility good sales reports over the next two weeks. Likely, the government is no more than half done with its buying. Yet, a troubling note was that essentially China was the only buyer reported this week, and this weekΆs total sales were more than 1.2 million bales. Mill demand must, at some point in time, catch up with retail demand.
Generally cotton joined other commodities in the Thursday and Friday eight cent drop. I mentioned last week that speculative funds did not like weathering the weekend on the long side of the market because of the financial crisis in Italy and Greece, well in much of Europe for that matter. That is difficult for the cotton industry to get its hands around, especially since neither world governments nor the world economic engine has been able to ease the financial bleeding in most of the countries. Too, these economic hurdles have no short term answer and will likely take another five years before we can muddle over them. While demand is set to rebound the growth will initially be very slow. The U.S. may well be another twelve to eighteen months before any significant increase in demand is noticed.
If the economic and financial uncertainty were not enough the market continues to suffer two additional problems. With the end of the calendar year approaching very quickly speculative funds have begun to close out positions, take their profit, and spruce up their annual reports. Thus, look for funds to continue to ease out of the cotton and other commodity markets as December 31 approaches. They will be back in 2012. The other difficulty for traders was the October 31 bankruptcy of a large Wall Street banking and commodity trading firm. That spooked a number of fund managers as well as leaving a large group of traders without access to their trading funds and accounts. Thus, volume has been abnormally low. Certainly, cotton trading has been quieter than normal as of late.
The last two trading sessions brought out “strong sell” recommendations for both the 2011 production and the 2012 production. However, while December 2011 was down the limit, the December 2012 contract lost only about half of that. Yet, as already stated, the three month trading range remains in place. Any failure to hold the 94 cent level will find support at 92 cents and then down to 85 cents. I continue to expect the 94 cent level to hold.
