“A dull affair” mostly describes the week of October 15-19 in cotton. December futures did post a three-week high and a high close Monday but resistance kicked in above 79 cents, and the balance of the week saw prices drift lower. December ultimately lost 45 points on the week to close at 77.92 cents.
The October 1 low of 75.37 has now stood for nearly three weeks, providing hope the harvest low is in, though it’s clearly too early to make that call. However, today’s CFTC Commitments of Traders report showed speculators were small net buyers during the week that ended Tuesday. This was the first uptick in the specs’ net long position in a while, so there was probably some bottom-picking going on.
There wasn’t much in the way of fresh fundamental news. Many of the industry’s top leaders were in Hong Kong for ICA’s annual meeting. The flow of information from the event seemed uninspiring. Most of the fresh business reportedly focused on non-U.S. growths. The keynote outlook presentation covered a list of familiar bullish and bearish influences without revealing a clear bias regarding future price direction.
Corn, soybeans and wheat all posted healthy losses this week. Energies and industrial commodities generally lost ground as well. U.S. stock prices basically held their own, but they certainly didn’t repair any of the damage done last week. Blame it on the now-familiar dynamic of sour trade relations and fears of a slowdown in the global economy.
In this environment, it wouldn’t have been surprising to see a more significant decline in cotton prices. Put another way, it may simply be the fear of as-yet unrealized demand destruction that is keeping the cotton bull down. After all, the current supply/demand numbers show a significant drawdown in world ending stocks for 2018-19. U.S. ending stocks are currently projected for a small increase. However, recent weather-related yield losses in the Southeast and West Texas may tip that balance.
As always, China is a big piece in the puzzle. In this week’s otherwise-unremarkable export report, the People’s Republic was responsible for the biggest numbers: current crop sales were net cancellations of 18,500 bales. Shipments of 33,200 bales were slightly ahead of second-place Viet Nam. Finally, China bought 17,600 bales of the total 24,200 bales for new crop.
Clearly, a renewed faith in China’s appetite for U.S. cotton would be a game-changer. For now though, the focus is on the U.S./Sino trade war and troubling signals from the Chinese economy. The downtrend in Chinese internal prices continued this week as traders anxiously seek signs of a bottom.
Technically, the futures market appears to be working on a potential short-term head-and-shoulders bottom. This is within the context of a technical situation that is long-term negative, so it’s no reason to get too friendly. However, if confirmed, this little bottom could kick off a correction to at least the low 80s. It might also convince traders the harvest low is, in fact, in.
If the nearby contract can get decisively above 84 cents, Taurus may go on a rampage. Today, that looks like a long shot, but a widely-read analyst recently likened cotton to a “bull market with the handbrake on.” Watch for signs the brakes are coming off.
The Pima market has likewise been quiet. Net sales on this week’s export report were only 5,000 bales; exports were 6,300. Quoted prices have stabilized at levels that would work back to about $1.30 at the grower level and haven’t changed in weeks. Harvest seems to be going well in the San Joaquin Valley and early classings reveal a top notch ELS crop. Cumulative U.S. sales this season total 236,500 bales, trailing last year’s 308,700 sold as of a similar date. Exports though are ahead: 59,200 to date versus 45,800 last year.