By Jeff Thompson, Autauga Quality Cotton 

Cotton prices will rally for yet another week, albeit at a slower pace and in lighter volume.  Since falling to a low of 70.21 on October 31, December futures have rebounded eighteen cents closing Friday at 88.20.  While doing so its managed to drag both March and May futures with it each settling at 86.33 and 85.56, respectively. In a week filled with contentious outside noise any gains are deemed impressive.

The first of which was Tuesday’s much anticipated mid-term elections.  Though the final outcome will not be known for weeks,  clearly the huge red wave expected to sweep across the country was at best a mere ripple.  Apparently, voters were more influenced by societal differences and the misguided threats of democratic decline more so than economic calamity.   At best, Republicans look to regain control of the House but only by the slimmest of margins while reclaiming the Senate appears to be a long shot.  In any case, this should provide enough grid lock to slow things down in Washington for now.

On Wednesday, USDA issued the November world supply demand report.  Though the numbers were rather benign,the market didn’t see it as such falling over 300 points minutes after the announcement.  However, it did recover once traders were given time to digest the figures.   World production for 2022/23 was reduced 1.6 million bales as world consumption was surprisingly only reduced 650,000 bales.  This resulted in world ending stocks falling 600,000 bales which normally would be considered bullish.  However, a   global consumption estimate of 114.8 million bales, only 2.4 percent below that of last year, is unrealistic given current economic conditions are far worse than that of a year ago. Case in point,  net export sales of only 146,400 bales in a week where cotton prices fell to their lowest level since November 2020 is certainly a sign of weak demand.  

As an early sign inflation may have peaked, the consumer price index fell to an annual rate of 7.7 percent compared to last month’s 8.1 percent and July’s 9.2, the highest in four decades.  Before there is dancing in the streets be reminded one month does not constitute a trend and with the CPI  still well above the Fed’s target of 2 percent there are certain to be additional interest rate hikes.  Though the Dow saw this as friendly, jumping 1,200 points for its biggest rally in two years, the worst still lies ahead for us. If the hawkish Fed remains resolute in their pursuit to bring prices down at all costs,  a hard landing cannot be avoided.     Even though the Dollar fell 1.3 percent on last week’s news, further strengthening will accompany Fed actions.

Where to from here?  After squinting hard at the charts trying to convince ourselves the market has begun a new upside trend, it appears to be simply a bear market rally. New buying is needed for the bull to return, otherwise these rallies are simply retracements and not sustainable. The Fibonacci .382 correction level is currently  89 cents. A close above this will put prices in position to run to the 50 percent retracement level at 95 cents. It goes without saying a vast improvement in the demand for cotton is desperately needed to stimulate new buying.