Will Sleepy Cotton Market Awake this Year?
Today’s Spotlight Market
While China remains ?King? when it comes to Cotton consumption, the country?s apparent shift to a more consumer orientated economy along with pressure for increased wages for the Chinese workforce, may eventually lead to a shift in textile production from China to its ?neighbors? in Vietnam and Pakistan where the costs of production are lower. While any major shift will take some time, China?s out sized influence on Cotton prices may be in the early stages of waning, similar to that of the U.S. in the first half of the 20th century.
Fundamentals
While many commodity markets have seen increasing downward price pressure in 2016 and in the early stages of 2016, the Cotton market has been relatively stable since late summer of 2014. The Cotton story mainly revolves around China, which is the world?s largest consumer of the fiber. Here the fundamental?s do not appear positive for a Cotton price recovery, as weaker than expected Chinese economic growth coupled with huge government owned Cotton stockpiles have analysts? scaling down their expectations for Cotton demand in 2016. Although Cotton prices were relatively stable in 2015 mainly due to lower production out of Southeast Asia, the general price weakness seen in the commodity sector, but especially in Corn and Soybeans could influence U.S. producers to favor planting Cotton as opposed to other alternatives. This scenario has the potential to boost U.S. Cotton supplies at the same time global demand wanes. While it is still early for U.S. producers to commit to their planting intentions, we may need to see Cotton prices actually decline in order to discourage additional Cotton acreage from being planted in the U.S. this season.
Technical Notes? -? View Today’s Chart
Looking at the weekly continuation chart for Cotton futures, we notice price have stabilized in a muted 10-cent price range for most of 2015. The recent price activity is similar to what occurred in the Cotton market from mid-2004 through mid-2007 which saw prices remain range bound prior to the start of the commodity wide bull market in 2008.Even then prices eventually fell sharply in 2009 prior to the start of the historic Cotton bull market in 2011. Back to 2016 we see prices hovering on both sides of the 20-week moving average which is consistent with expected market behavior of a consolidation pattern. The 14-week RSI is confirming the current status with a rather neutral reading of 45.80. Near-term support is seen at the January 2015 low of 57.05, with near-term resistance found at the September 2014 high of 71.49.???
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