No Soft Landing For Cotton Prices Yet
Today’s Spotlight Market
Both large and small speculators have been adding to existing net-short positions the past week, despite prices hovering at nearly 6 ? year lows. The most recent Commitment of Traders report shows the net-short position in Cotton for non-commercial and non-reportable traders increased by nearly 4,500 contracts during the reporting period ending February 23. Commercials are on the other side of the trade, increasing their net-long position to nearly 12,250 contracts.
Fundamentals
Commodity bears continue to have a ?soft? spot for Cotton futures, as a higher than expected estimate for U.S. Cotton plantings this season sent front-month futures to their lowest levels in over 6 years. During last week?s USDA Outlook Forum, government economists estimated this season?s Cotton plantings at 9.4 million acres, vs. 8.58 million acres last year. The rise in Cotton acres despite the slump in prices is likely the result of low prices for alternative crops such as Soybeans and Corn. This leaves many producers little choice but to plant Cotton this season. Globally, Cotton demand has been lackluster, with Chinese Cotton imports falling in January. U.S. Cotton exports for the current marketing year are running nearly 20% below the 5-year average for this time of year. While current fundamentals appear to favor those with a bearish view for Cotton prices, there is some optimism for Cotton demand for the 2016/17 season. The USDA raised its estimate for Chinese Cotton demand next season to 33 million bales, which would be the first increase since the 2009/10 marketing year and could be the first major step for Cotton prices to finally attempt to form a bottom.? ?
Technical Notes? -? View Today’s Chart
Looking at the weekly continuation chart for Cotton futures, we notice prices trading below previous support at 57.05 and reaching price levels not seen since September 2009. While prices are forging a 6 ? year low, the 14-week RSI has not yet reached oversold levels, which could leave room for further price declines. The next major support level is found at the June 2009 low of 50.15, with major resistance found at the August 2015 high of 68.30.
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