Weakness in grains and metals and a sharp sell-off in energy markets helped pressure the cotton market yesterday. Selling by funds took the market lower initially, but selling was minimized by a higher stock market with traders continuing to monitor the recent recovery in demand. News that there was only a small amount of deliverable grade cotton decertified may have also prompted some of the long liquidation selling. The hook reversal may be seen as a short-term negative factor, and short-term indicators are also showing an overbought condition. The March contract made a new high for January yesterday and it also marked the highest level since October 28th. The next significant demand numbers will be out this morning starting with the monthly Census Consumption Report at 7:00 a.m. followed by the USDA’s Export Sales Report at 7:30 a.m. These reports come at the end of a week that has seen increased demand, most notably in the export market. Certificated cotton stocks dropped again yesterday to 137,237 bales versus 137,998 the previous session. Longer term, there may be a number of factors that are supporting the cotton market. China buying and dry weather in the southern Plains are among them. Even though it is premature to worry about weather in the US, conditions are very dry and preliminary field work is now getting underway in Texas. It looked as though the storm that started in the southern Plains yesterday and into today would improve moisture levels, but we have seen very light to trace amounts in the driest areas so far. It should also be noted that trillions of dollars are said to be parked in US Government debt instruments and money markets and some of this will almost inevitably shift over into other sectors such as commodities. The surprising strength in the stock market and housing despite very poor economic data may be further evidence of this potential shift.
TODAY’S GUIDANCE: The market may need to pause to correct a mildly overbought situation. This should be temporary. We would wait for a buying opportunity at a lower level and that may come after tomorrow’s fresh demand numbers from the Census Bureau and the USDA.
