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While there may be a need to see some consolidation or higher trade in the short-term to ease the oversold technical condition of the market, a more extended rally seems unlikely unless weather becomes a more significant force ahead of harvest. News that India cotton production for the year ending September 2010 could end up near 30.5 million bales, up from 29 million bales this season is seen as a negative surprise by some traders who saw less competition for exports for the coming year if India monsoons disrupted the cotton production. December cotton followed other commodity markets lower early yesterday as the market was second-guessing the outlook for an improving world economy and a sharp break in energy markets and weakness in the stock market helped to pressure cotton early. However, a late rally drove the market sharply higher on the session. News that some China firms may be in a position to walk away from previously booked deals helped to provide some pressure early in the day but traders see the impact of lack of regulation of some OTC contracts as a minor factor for world trade. A sharp break in soybeans and other grains added to the bearish tone early in the session. End-of-the-month short-covering added to the buying support late in the day. A World Trade Organization ruling against the US on cotton subsidies opens the door for changes in the government subsidy programs to US cotton producers in the long run. Brazil officials believe that the country will be entitled to $800 million in retaliation this year and could move for $340 million in sanctions in intellectual property and services. In the long-term, an adjustment of “less” subsidies for US producers could help further reduce planted area in the US which could be considered a supportive force. The weekly Cotton Conditions report showed 51% of the US crop was rated good/excellent compared to 52% last week and 50% last year. The 10 year average for this time of year is 51%. Texas crop conditions slipped to just 39% good to excellent from 42% last week and 41% as the 10-year average. Scattered rains are in the forecast for the West Texas region for later this week and for next week which may be seen as beneficial to crops.
TODAY’S GUIDANCE: Mixed fundamental news and the oversold technical condition leaves the market in a position to see some short-term support. Close-in support for December cotton is at 58.35 and 57.60 with 60.24 and 61.23 as key resistance levels.
