Will Cotton Bulls ?Bale? after Recent Price Rise?
Today’s Spotlight Market
Large and Small speculators in Cotton futures have mixed opinions on the direction of prices but with little conviction in either camp. The most recent Commitment of Traders report shows non-commercial traders reversing their short positions and are now net-long 3,130 contracts as of August 26. Non-reportable traders are still net short after adding 281 new net-short positions to stand at 3,121. Commercials have liquidated their net- long positions during the same time-period and are only very slightly net-short as of August 26.?? ?
Fundamentals
Cotton bulls have seen some positive price action of late as the lead month December futures have rallied from 5-year lows. However, any significant price rise still faces some major bearish headwinds.
First, traders are concerned that Cotton imports from China, the world?s largest Cotton consuming nation, will be lower this year as the nation continues to hold huge Cotton inventories in its strategic reserves. Additionally, global Cotton production is expected to increase this year to an estimated 22.25 million tons vs. just over 50.5 million tons last year.
Earlier this month there was some concerns by market participants at the late start to the monsoon season in India, which could affect crops from Cotton to Sugar if timely rains did not develop. However, rainfall totals have increased of late, which is taking this bullish factor off the table for now.
U.S. Cotton conditions declined last week, with 50% of the crop now rated good to excellent vs. 51% the prior week. However, only 16% of the crop is rated poor to very poor which is an improvement from the 10-year average of 22% for this time of year.
As we head into the fall, Cotton prices may face harvest pressure as producers ponder selling new-crop Cotton in lieu of storage, especially if it appears that Chinese demand will be subdued going into the New Year.?? ?
Technical Notes? -? View Today’s Chart
Looking at the daily chart for December Cotton, we notice what appears to be a bear-flag forming. This technical pattern can portend a resumption of the major trend once the current price correction has been completed. Generally, technicians would wish to see a close below the lower uptrend line that forms the bottom of the ?flag? formation, on higher than average trading volume to confirm this bearish technical pattern.
Currently, prices are holding just above the uptrend line drawn from the August 1st low, as well as the 20-day moving average. However, to shift the long-term trend back to the bull camp, we would need to see prices rally above the 200-day moving average, which is currently nearly 12-cents per pound higher than the current market price.? Resistance is seen at 67.72, with support found at 62.02.?
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