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Serving: United States
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Why cotton prices slipped

Plentiful global supplies and trade uncertainty bring the five-month rally to a pause.

After a five month rally, cotton futures seem to be searching for fresh, friendly, fundamental news. Prices slipped earlier this week, posting an outside bearish reversal on daily charts.

Seeing this technical signal makes me wonder if investors may be headed to the sidelines due to uncertain news that President Trump was considering blocking imports of cotton and cotton products from China’s western region of Xinjiang over accusations of forced labor. 

While nothing has been formally announced, it was enough news of ambiguous nature to begin a round of profit taking of long positions.

Will the trend hold?

As of this writing, the five month up trend continues to hold quite well on daily futures charts. However, a close below 63.00 cents per pound for December cotton futures would break the uptrend, and likely allow for technical selling to occur.

Friday’s USDA report will provide the next piece of the fundamental puzzle. An unexpected friendly report could keep the five-month up trend intact. However, negative fundamental news could be enough to trigger technical and fund selling, which could send prices lower quickly.

Looking ahead to Friday’s USDA report

Looking at pre-report estimates for the upcoming USDA report, trade is looking for slightly smaller U.S. cotton production totals.  In August, the USDA pegged U.S. cotton production at 18.08 million bales.  The average trade estimate heading into Friday’s report is 17.57 million bales, with a range of estimates of 16.75 to 18 million bales. Ending stocks are also expected to be lower. In August, the USDA estimated U.S. ending stocks at 7.6 million bales, with trade expecting Friday’s report to show ending stocks to be closer to 7 million bales. Be aware, even that expected drop in ending stocks would leave the U.S. with ample supplies; the second largest in over a decade.

Global supplies are also large. The top five major cotton producing nations (in order) are India, United States, China, Brazil and Pakistan. In August USDA pegged global production at 117.53 million bales, with pre-report estimates for Friday now only slightly smaller at 117.07. When looking at global ending stocks, they are currently at a record large amount. Fridays’ USDA report is not expected to change that notion with ending stocks expected to be near 104.44 million, only down a bit from 104.94 million in August.

Friday’s report will be scrutinized with traders also looking at the potential rain coming into the nation’s cotton growing regions. Over one third of the nation’s cotton crop has open bolls, which could be adversely affected by too much rain. Keep an eye on the USDA report, weather, and the charts for short term price direction.

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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