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The cotton market has seen a 5-day consolidation after a sharp break off of the mid-August peak and this is typically a continuation pattern so watch for another leg down soon. Traders remain bullish on the theme of global expanding economies but China has been slow to begin imports for the coming season and some traders see China using part of the reserves built up last year before more active imports resume. A slight deterioration of crop conditions and a firm tone to the stock market helped support a bounce overnight. December cotton closed slightly higher on the session yesterday but well off of the mid-session highs. The market found early support from a sharp rally in soybeans, talk of the oversold condition of the market after last week’s sharp losses and from solid gains in the stock market. The late weakness in the stock market and ideas that cotton crop weather is favorable helped to limit the advance. A firm dollar and talk that China has been very quiet so far this year in cotton but active buyers of soybeans was also seen as limiting factor for the bounce. The weekly Cotton Conditions report showed that 52% of the US cotton crop was rated good/excellent compared to 53% last week and 48% last year. The 10 year average for this time of year is 51%. Texas crop conditions slipped 1% to 42% good to excellent while Georgia conditions improved 2% to 58% good to excellent. Crop conditions seasonally decline at this time of the year through the end of September as the 10-year average slips from 51% this week to 47%. The COT report from Friday showed a moderate selling trend from fund traders which is a potentially negative force. Trend-following funds reduced their net long position by 2,193 contracts for the week and index funds were also net sellers of 1,701 contracts and the selling trend is another short-term negative force.
TODAY’S GUIDANCE: The market seems to be in a position to see further weakness over the short-term with a lack of interest from China and decent growing conditions. The weak technical action leaves 58.15 and maybe 55.86 as downside targets for December cotton with 60.26 and 61.20 as resistance.
