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The market seems to be trying to look past the current season and to next year when planted area may slip again and this has helped support the recent recovery bounce. However, the near-term demand outlook continues to worsen as economic news suggests a deeper recession ahead. March cotton finished higher yesterday after taking out both the high and the low of Tuesday’s range in two-sided trade. Traders said that market action followed patterns set in a number of outside markets including soybeans and the stock market. The Federal Reserve’s Beige Book showed labor markets weakening in many districts with accelerating layoffs. This continues to put a damper on cotton prices as traders monitor the market for long term direction in demand. The USDA will issue its latest weekly export sales report this morning and traders are expecting sales to be down from 175,500 bales last week. The USDA attaché in India has left their production forecast for 2008/09 at 24 million bales but consumption and exports for the season were revised lower. Exports could drop to 5.1 million bales, down 31% from last year and demand is now expected near 17.5 million bales, down 1 million from last year. Buyers are likely to back away from new purchasing and sellers remain active. Traders await the December USDA Supply/Demand report which is likely to show declining world and China demand and higher stocks.
A continued decline in open interest on the recent rally suggests short-covering, not new buying, has supported the market which is not a good foundation to expect much more on the upside.
