USDA Report Bullish, But Cotton Sags
?? Fundamentals
Cotton futures moved sharply lower yesterday after the USDA estimated China is holding onto larger inventories than was previously expected. The USDA estimated that Chinese inventories are 35.51 million bales, versus the prior forecast of 34.18 million bales. Some traders have been paying particular attention to Chinese demand, as the government there has been focused on restocking. The USDA estimated that world production will be 114.03 million bales, versus the prior figure of 124.16 million bales. The Department predicts consumption will be 107.55 million bales, which would be 104.28 million more bales than last year. The US harvest is only forecasted to yield 17.11 million bales, versus the August projection of 17.65 million bales. It is apparent that with the exception of the Chinese inventory numbers, the USDA data is heavily tilted toward the bull camp.
?? Technical Notes
Turning to the chart, we see the December Cotton contract breaking through the lower end of the consolidation channel it has been trading in for several months. The contract also closed below the 50-day moving average yesterday, although not in convincing fashion. On the downside, support may be found at 70.00, 67.50 and 65.00. The 65.00 level can be viewed as critical support, or the point of no return, if you will. The RSI is at oversold levels, which could be seen as supportive in the near-term.
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