Bears ?Bollin?? As Cotton Prices Rally
Today’s Spotlight Market
While it appears that the U.S. will produce a much smaller Cotton crop this season, the demand side of the equation appears to favor the bull camp as well. The USDA lowered its beginning stocks estimate by 500,000 bales as Cotton exports for old-crop Cotton have been running better than forecast. The wild card in any demand forecast is China and how the nation?s slower growth forecast will affect its Cotton imports for the 2015-16 season.
Fundamentals
The rather sleepy Cotton market in 2015 received quite a wake-up call last week following the release of the USDA August Crop report. Here the USDA lowered its forecast for the U.S. Cotton crop to 13.08 million bales. This was down nearly 20% from last year?s totals. It was a triple crown of reasons for the lower estimate, with the USDA lowering its average yield, and planted acreage estimates, as well as raising the amounted of acres that will be abandoned by producers. The sharply lower production estimate caught traders especially off guard as many were expecting a modest increase in production totals.
Dry conditions appears to be responsible for the lower yield estimate as much of the deep south, from eastern Texas to the Carolinas is experiencing moderate to severe drought according to the most recent U.S. Drought Monitor. The 6 to 10 day temperature forecast is also calling for above to well above normal temperatures for the Cotton Belt which if accurate, may continue to lower crop condition ratings and potentially reduce yields even further as we had into the fall harvest season.
Technical Notes – View Today’s Chart
Looking at the daily chart for December Cotton, we notice the market trading near the upper end for the nearly year-long consolidation pattern. However, the move from the lower band of this range near 61.00 to its current level near 67.00 occurred quickly following the release of the August crop report. There remains some solid resistance in the 67.00 to 68.00 price area with a weekly close above the 2015 high at 68.11 needed to pique the bullish interest of long-term trend following traders. Prices are now above both the 20 and 200-day moving averages and momentum is strong with the 14-day RSI reading above 60. The July 10 high of 67.23 is seen as the next resistance level for the December futures, with support found at the 200-day moving average, which is currently near 64.60.
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