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It seems as though it will take more aggressive buying from speculators to offset the bearish short-term demand factors to hold the market steady. While one could make a case that lower planted area in 2009 would tighten ending stocks in mid-2010, the buyers have no reason to jump on board just yet and sellers short-term are in a difficult spot. Outside market forces have provided solid support to cotton recently but if there is a lull in speculative buying due to deflationary pressures on the economy, prices could drift lower. Demand is slowing and as the pipeline fills, new selling could drive the market lower. March cotton tested the December highs yesterday before closing moderately lower on the session as a weaker tone for the economy, a sell-off in the stock market and a turn back up in the US dollar helped to pressure. Economic sensitive commodity markets were under pressure as deflationary pricing in energy helped spark long liquidation selling in these commodities. Short-term demand factors could worsen into early 2009 as consumers back away from the market. Consumers in the US and in many of the other key world economies are unlikely to see a jump in discretionary spending for household furnishings and/or clothing no matter what currency the items are traded in. Net weekly export sales for cotton came in at 78,100 running bales for the current marketing year and 3,100 for the next marketing year for a total of 81,200. This was well below expectations and China was not involved as a major buyer. As of December 11th, cumulative cotton sales stand at 65.6% of the USDA forecast for 2008/2009 (current) marketing year versus a 5 year average of 58.1%. Sales of 118,000 running bales are needed each week to reach the USDA forecast. Weekly shipments came in at 178,400 bales, a marketing year low.
TODAY’S GUIDANCE: A move under this week’s low (43.43) could spark long liquidation selling and also increased commercial selling. Any further signs of a weakening demand base for cotton could spark another round of speculative long liquidation selling as well.
