Today’s Spotlight Market
The Cotton futures market has a 2-way tug-of-war going on with large speculative accounts on the bullish side and Commercial Hedgers selling into the rally. The most recent Commitment of Trader?s report shows non-commercial traders added nearly 8,000 new net-long positions during the reporting period ending September 27. This raised their overall net-long position to just over 96,600 contracts. Commercials on the other hand increased their net-short position by just over 7,600 contracts to a net-short position of nearly 105,400 contracts. Small speculators have been rather quiet in the market, shedding almost 200 net-long positions during the reporting period which reduced their overall net-long position to just over 8,750 contracts.
Fundamentals
Rather quietly, Cotton futures have been in an upward price trend for most of 2016, with new-crop December futures gaining nearly 15-cents from the market?s late February low. Concerns that once burdensome supplies of Cotton were finally being drawn down appear to be the main catalyst in the price recovery, triggering a bout of Commodity Fund short-covering which then evolved into fresh buying by momentum based traders. Add into that scenario some weather risk premiums over the summer for the U.S. crop and you have all the pieces in place for the rally. However, as fall has arrived and we start to focus on the U.S. harvest, some analysts believe that harvest forecasts might be revised higher due to improving weather conditions the past few weeks.? U.S. Cotton ending stocks for 2016 are expected to increase to over 5 million bales, vs. 3.8 million bales in 2015, assuming we do see the USDA revise yields upward. Any continuation of the uptrend may hinge on how U.S. Cotton exports fare heading into 2017 — but especially U.S. exports to China, which is the world?s largest consumer of the fiber. Here the outlook is still cloudy concerning how China?s Cotton sales from state owned reserves will affect its import totals next year. Should Chinese buying start to diminish, it could signal the end to the recent up-move for Cotton prices as we approach the New Year.
Technical Notes? -? View Today’s Chart
Looking at the daily chart for December Cotton, we notice prices appear to have entered a consolidation phase after a minor price correction from the 2016 highs that were made back in early August. While the longer-term trend still favors the bullish camp as evidenced by prices holding above the 200-day moving average, near-term we are seeing more two-sided trades, with prices trading within a 600-point price band since the beginning of September. Some chart technicians may argue that the market may be forming a rather large bull-flag on the daily chart, but we would need to see an upside breakout above the most recent minor high of 72.36 made on September 22, and ideally on higher than average trading volume, to confirm this bullish technical formation. Momentum as measured by the 14-day RSI remains in neutral territory, with a current reading of 53.04. While the aforementioned September 22 high of 72.36 looks to be chart resistance, we find chart support at the August 31 low of 65.41.? ?
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