China?s Policies Key For New-Crop Cotton Prices


Today’s Spotlight Market
Current analysts? estimates predict an increase in U.S. planted Cotton acreage this coming season, following a sub-par season when U.S. Cotton production totaled only 13.2 million bales. There is talk in the trade that U.S. producers may plant up to 1 million additional acres to Cotton this season, which would bring acreage totals back above 11 million acres.

Although it is too early to predict what Mother Nature will throw at Cotton producers this coming season, we should note that growing areas in the southwest, especially in Texas, have benefited from additional moisture levels this winter, which will likely help the Cotton crop get off to a good start this spring. This could increase average yields and allow U.S. Cotton production to increase significantly after three consecutive sub-par seasons.?? ?


For Cotton traders, the focus will likely continue to be on China, as the world?s largest consumer of this commodity is in the early stages of a potential shift from being an aggressive buyer to support government held stockpiles towards possibly releasing some of its reserves into the domestic market. The timing of this shift is what is keeping Cotton traders and producers up at night, as a rapid release of stockpiles could depress global prices.? But a gradual shift away from aggressive purchases could still support prices, as supplies outside of China are rather tight.

As we move ever closer towards spring in the Northern Hemisphere, we will begin to turn our attention to prospective plantings for the upcoming season.? Current estimates are calling for a moderate increase in U.S. Cotton acreage, as new-crop futures are looking attractive, especially as compared to competing crops such as Corn. Increases in Cotton production this year could become an issue for producers later this season should Chinese buying decrease sharply, which would allow global stockpiles outside of China to swell and potentially cause a fairly sharp decline in new-crop prices if China is not willing to absorb excess global inventories.? ?


Technical Notes? -? View Today’s Chart
Looking at the daily chart for new-crop December Cotton, we notice prices becoming rangebound, with a price boundary between 75 and 80 cents per pound. Trading has been slow in the new-crop months so far this year, however trader interest may likely increase as we move closer to the USDA prospective plantings report due out at the end of March.? Prices are currently hovering near the 20-day moving average (MA), but remain slightly below the 200-day MA currently near the 78.85 price level. Near-term support is seen at the February 3rd low of 75.96, with near-term resistance seen at 80.00.



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