Well, there is finally something different, if not pleasurable, to write about in the cotton market with this weekΆs failure of the Dec contract to be supported above both the 62.00 and 61.20 levels. Among the Ags, cotton was the major mover this week, losing 258 points (636 over the last 4 weeks) and settling near the bottom of the weekΆs 330 point range. Grain market weekly moves were not significant as they seemed to consolidate last weekΆs gains.

Nothing could revive our market as investors exited throughout the week, presumably with the largest exit coming today as support levels were breached. Because we were in the camp of analysts who expected that the 61.20 support level would hold, this column is especially difficult to pen this week.

This weekΆs dismal finish had more to do, we think, with the lack of positive news rather than out and out bearish news, but it was enough to make specs throw in the towel. And we did not think that it would be so with last weekΆs supportive US S&D balance sheet, an improvement in export sales and the FedΆs decision not to further burden emerging market currencies with an interest rate hike.

The US export report showed total net sales of just above 100K running bales against zero sales cancellations while shipments weakened considerably at about 65K running bales. The results for the week ending Sept 10 were on par with our expectations put forth here last week – higher sales that fell well short of the weekly pace requirement in order to meet the USDAΆs 10.2M bales export target. Such is likely to again be the case next week as increased mill interest and buying has been rumored/reported over the last week.

It is harvest season across most of the northern hemisphere, albeit a bit delayed in its commencement this season, while planting of the new crop has either begun or will soon begin across the southern hemisphere. Post the Federal Reserve BankΆs interest rate decision, production prospects provide the most likely avenue for market shocks over the near-term. And thus far it has been a mixed bag.

Hot, droughty conditions look to have curbed the Former Soviet UnionΆs production significantly this season while recent droughty conditions over central west India were alleviated somewhat over recent days. Weather has not been a major concern for much of the growing season in China, but recent cold and wet conditions have delayed harvest operations in Xinjiang. In the US, the current growing season has been pock-marked by pockets of drought and heat stress while other areas have an extremely late crop because of continued heavy rains after planting.

However, at this time, weather conditions across most of The Belt are nearly perfect for defoliation and early harvesting operations. The current El Nino, which threatens to hinder this seasonΆs harvest efforts, also is credited for (per wind shear at high altitudes) a likely early conclusion to this yearΆs Atlantic hurricane season – the latter stages of which has historically been a formidable threat to US cotton production.

Demand will pick up. We all know it and the USDA is so confident of it that it enhanced its official US export projection to 10.2M bales last week. The US is woefully behind it historical pace of sales relative to the marketing yearΆs final tally, but I remain less concerned as long as sales continue to increase weekly. A 200K bale report would do a lot for this market.

With the RGV crop coming in and harvest days or weeks away in most of the US, forward contracting has slowed substantially, and the basis has widened from the more aggressive levels we saw earlier in the season. That said, the merchants weΆve spoken to expect to see an aggressive basis return for higher grade recaps, and weΆd encourage producers to take advantage of this basis during October and November. As always, the option pit is the place to act on your bullish strategies.

In recent days our phones have gotten busier with calls from producers studying their ARC/PLC contracts and the consequences of LDP/MLG payments on their payments. National Cotton Council and other groups have been focused on this issue for some time, and are currently working towards a certificate program to offset these losses. If this is news to you, weΆd encourage you to contact the NCC and your FSA staff to get up to date on current program provisions and their implication for your operation.

For next week, the standard technical analysis for and money flow into the Dec contract are bearish, but the market has become much oversold. We think that there are few natural sellers at current prices, which, combined with the marketΆs oversold condition, should allow for a bounce next week. Presumably todayΆs crash uncovered some demand, but we will not know its extent until Thu, Oct 2.

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