Any trader looking for guidance from the June planting report may have been disappointed as the figure was neutral enough to provide a steady close. Soybeans, corn and wheat came under significant pressure on Friday, with more in the start of tonight’s session.
CottonΆs new crop fundamentals are healthier ,but bad news with the macro picture or additional new lows in Chicago could have an adverse effect.
Thus far, the December cotton contract has been able to hold above its Jun 3 lows but can it continue to do so. Many believe that the 82.00 level will hold, and if the calendar read September 30 vs June 30, I would be inclined to agree.
A year ago, a pre-season low of 64 cts was set in place in June, with a higher harvest low of 69 cts in November. The difference in June 2012 and June 2013 is nearly 20 cents and with the growing and harvest seasons in front of us, I suspect the problems with the US crop will not be enough to sustain prices over the next 3-6 months.
If another major country experiences production issues, THEN all bets are off but until we reach that point, this monthΆs lows are vulnerable.
Mills not only drew their line in the sand, they have not stepped over it meaning they have held their ground in regards to the price they are willing to pay for cotton. This chart in this monthΆs Cotton Economic Outlook from the NCC shows the 3-year decline in CottonΆs Share of Fiber Consumption.
Any number of reasons explain why mills have such a staunch attitude, but the futures market is unwilling to ignore their lack of buying on any rallies. If mills are forced to step up on their pricing, it may be enough to change the dynamics of the market but I am not convinced at the moment.
Specs, who reduced their longs as of Tuesday, June 25, per the latest CFTC COT reports, can only provide limited help and only on occasion. Commodities as a whole look lousy and feel horrible. The DJ-UBS Commodity index put in its lowest monthly close in June 2013 of the last 3 years and, per my technician DaveΆs observations, “paints a picture of a deflationary spiral.”
He does see support near at hand and a friendly nine-month down cycle should stabilize this index but rallies are seen as minor. Not the sort of outlook cotton bulls want to see for the macro picture.
As for cotton into and during July, he says: “The expectation was for a 500 to 700 point advance in June. December Cotton obliged with a 784 point spurt before getting hammered back in place. The bullish monthly cycle did its job, but prices were slipping badly at month end. In that sense we are getting a mixed message for the month ahead. The only thing I feel comfortable in saying is that if prices continue to trend lower, the target will be 78.00.”
DaveΆs price is 6 cents away from FriΆs close basis December with further support at the November 12 low of 75.00 cents.
