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Cotton futures at critical juncture

Is the three-month rally coming to an end?

Cotton futures, like many commodities, fell sharply lower during the month of March due to COVID-19 demand concerns. With the world coming to a halt, global clothing factories closed their doors, as consumer demand for new clothes was also put on pause. Would China curtail cotton imports for its clothing factories? That fear sent cotton futures plunging to prices not seen since 2009. 

Fortunately, cotton futures found their price low in early April and have been on a committed, steady price climb ever since. 

July futures are well supported at 59.00 while overhead resistance is near, coming in at 63.46, which is the 200-day moving average on daily charts. A climb to that level would also be a 61% retracement from the January high to the late March price low.

Holding the uptrend

What is impressive regarding cotton is that in spite of a recently bearish USDA report, cotton futures continue to hold onto this uptrend. On last week’s USDA report, new crop expected production is pegged at 19.5 million bales. Unfortunately, domestic cotton demand was reduced, old crop ending stocks are hefty, and this allowed new crop U.S. ending stocks to increase to 8 million bales, which is the highest ending stock number in 13 years.

World ending stocks are also larger coming in at a six-year high.

Leading exporter

It feels like traders are monitoring cotton export demand in the short term. U.S. cotton exports continue to be strong overall. The U.S. is actually the world’s leading cotton exporter at an astounding 16 million bales! And while China is the world’s second largest cotton producer, it actually imports close to 9 million bales. So, if U.S. exports can continue strong in the coming weeks that might keep price in an uptrend for the short term. 

From a production stand point, U.S. farmers are expected to plant nearly 14 million acres to cotton this year. Looking at U.S. crop progress ratings, cotton is now 89% planted, nearly on track of the five-year average of 91%. The crop is rated 43% good to excellent, with 40% of the crop at fair, while 17% of the crop is actually thought to be poor to very poor.

The weather ahead will be something to monitor. If no weather threat is perceived, then this recent price rally might run out of steam sooner than later.

The coming two weeks will be very important for cotton price direction. Keep an eye on exports, weather, and the planted acreage report on June 30th for the next pieces of the market fundamentals important to cotton prices.

Reach Naomi Blohm: 800-334-9779 Twitter: @naomiblohm   and naomi@totalfarmmarketing.com
Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation
The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 
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