The cotton market continued its recent weekly oscillating pattern, with the Dec contract giving up 209 points to settle at 68.53. It certainly seems that mill on-call fixations offered some support this week, but ultimately gave ground to harvest pressure (both domestically and abroad), liquidation by index funds ahead of annual rebalancing maneuvers, and a heavy spec net long futures position that needed to be either rolled or liquidated.
By this time next week, we will be focused more so on the Mar contract than the Dec.
US export sales were higher for the week ending Oct 27 Vs the previous sales period at around 165K total net running bales. This figure eclipses the weekly pace required to match the USDA’s 12M bale export projection, but the pace of shipments remained anemic – the US will now need to ship nearly 240K running bales per week in order to hit the USDAΆs target.
The 2016 US crop should, by now, be 50% or so off the stalk, with around 1/3 of the USDAΆs currently projected production classed. And quality thus far has been very good at nearly 71% deliverable against the ICE contracts.
Next week should bring more volatility than usual, even for a week in which the Goldman index fund will either liquidate or roll their long Dec cotton position. Of course there is the normal jockeying for position ahead of the WASDE report, slated for release at 12:00 PM ET on Wednesday, Nov 9, but, in addition to this, the market will have to negotiate the prospect of new national leadership, per the results of TuesdayΆs presidential and congressional elections.
It should be interesting.
At the moment a popular theory seems to be that if Trump wins, The Fed would likely postpone its anticipated token interest rate hike in Dec. Many pundits also expect that a Trump win would likely result in a selloff of the stock markets, due to perceived greater economic uncertainty Vs that perceived to be likely under a Clinton administration. However, should such occur, the associated (probable) weakening of US currency would likely not be totally unfriendly for our market. The old truism that speculators prefer to own something “real” in a period of uncertainty could make commodities more attractive than stocks.
Regardless, the words “President” with either “Clinton” or “Trump” following does not roll off the tongue well – at least not mine. But then again, neither did “Cubs – Indians World Series matchup” nor does “The World Champion Chicago Cubs”.
Producers continue to see strong basis in the country, and we continue to recommend taking advantage of a strong basis on any rally to the top of the current Dec 67-71 channel.
For next week, the standard weekly technical analysis for and money flow into the Mar contract are effectively neutral. US net export sales for the week ending Nov 10 are likely to show improvement Vs the figures put forth this week. The Goldman index fund roll will commence on Monday and run through Friday. On Wednesday, the market will have election results to contend with, as well as the normal uncertainty that surrounds USDA WASDE report releases.
For what itΆs worth, we expect US production to be estimated modestly lower Vs the approximate 16M bale figure put forth on Oct 12.
