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The market managed to move higher yesterday and again overnight despite weakness across most markets. On top of speculative buying, the cotton market faces potential losses in quality and quantity if heavy rains continue in the delta. With 1/2 to 2 inches of rain expected to move across the delta in the next 48 hours, the crop may take on some yield and quality damage as bolls are wide open and harvest progress the slowest in at least 25 years. In fact, while bolls are open on 86% of the crop (88% average) harvest is complete for just 15% of the crop as compared with 41% as the 10-year average. Cotton was one of the few commodity markets able to rally yesterday despite a weak tone from outside markets. Grain markets fell under the pressure of a strong US dollar and weakness in the stock market even failed to pressure cotton. News of the slow harvest pace may have helped provide support. Traders remain fearful that the remnants of the hurricane in the pacific will drift over to Texas and the delta and slow harvest again and this added to the positive tone. The new disaggregated Futures and Options report data from the CFTC showed that managed money traders (mostly trend-following fund traders) have built a net long position of 42,712 contracts from a net short position earlier this year. The position last peaked at 81,762 contracts at the end of February in 2008. This would suggest plenty of buying power left from the funds before reaching an extreme.
TODAY’S GUIDANCE: The steady climb in open interest, a wet forecast for the southern US and speculative buying are all seen as near-term bullish forces for the market. December cotton resistance is at 67.90 with 65.07 and 64.05 as support.
TODAY’S MARKET IDEAS: New buyers can wait for correction. March cotton buying support is back in the 67.15-66.15 zone with 74.70 as next upside objective.
