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Some chances of rain in West Texas on the weekend and fears of a weakening economy was enough to keep the market under pressure yesterday. On the other hand, the market was unable to break-out to the downside as this week’s lows held. The consolidation this week looks like a continuation pattern for July cotton and it will not take much in the way of weak economic news or bearish news from outside markets to spark an aggressive long liquidation trend for cotton. Export sales were better than expected, however, and there are still some dryness concerns for the West Texas crop but weakness in the stock market dominated as the key force for the day to pressure cotton futures. The market closed lower with an inside trading session. Net weekly export sales came in at 141,200 running bales for the current marketing year and 58,100 for the next marketing year for a total of 199,300 which was much higher than expected. Cumulative cotton sales for the old crop season stand at 106.4% of the USDA forecast for the year versus a 5 year average of 100.8% for this time of the year. Cotton shipments for the week came in at 445,200 bales which was also better than expected and helped provide some support. There is about a 40% chance of scattered thunderstorms for West Texas for Saturday and again Sunday and the region needs rain to get the rest of the crop planted. Non-irrigated acres have been too dry to plant and we are moving past the optimal planting dates. The market is already looking at a production deficit for the 2009/10 season and also the potential for world demand to recover. China imported 145,560 tonnes of cotton in April, down 44.7% from last year and this pushed the 4-month total to 415,399 tonnes, down 47.5% from last year.
TODAY’S GUIDANCE: On top of the weather, the market focus is in on whether or not China will release its massive reserve or if China merchants will continue to import. Comments last week suggested the former and China officials overnight indicated that China will sell 1.52 million tonnes of reserve cotton into the domestic market beginning today. July cotton seems vulnerable to a lack of much support under the market while December will remain sensitive to weather.
TODAY’S MARKET IDEAS: Short-term selling resistance for July cotton comes in at 57.85 with 54.24 as next downside target. The solid uptrend in December cotton and the potential for tightness ahead leaves 65.80 as a longer-term target but buyers may want to wait for a more significant correction back to key support at 58.17 or 56.85 and rains this weekend plus the China news may spark a set-back into early next week.
