The ICE Dec contract gave up 61 points on the week, settling at 68.46, although it did manage to challenge the 70.00 level on Mon. The Mar contract lost 41 points, resulting in a modest weakening of the continuing Dec – Mar futures inversion.
The movement of ICE Cotton futures relayed that, in aggregate, traders paid little attention this week to a strong turnaround in US export business for the week ending Sept 14. Data suggested – at least to us – that sales would improve Vs Sept 7, but not nearly so much as the pace that was realized. Net sales were nearly 280K running bales. Shipments remained relatively slow but this is not unusual for this time of year and readily available US bales are in tight supply.
A bear pennant flag had been forming on the daily charts several days ahead of the Dec contracts’ break (and settlement) below near-term support, so the liquidation of some longs was likely triggered by Dec’s convincing break below the 69.00 mark.
Conversely, the market’s subsequent weekly support just south of the 68.00 mark – reminiscent of the last time that futures gapped higher from around 66.50 – was likely grounded in market fundamentals. That is, the market was trading well below a level where significant demand for US bales for export has recently resided while also flirting with a level that had previously shown a significant amount of mill on-call sales fixations.
The prospect of inclement weather (potentially heavy rains and unseasonably cool temperatures) moving across West Texas, New Mexico, Oklahoma and Kansas also likely propelled some in-the-green shorts to snatch some profit ahead of the weekend.
Domestically, the balance of the crop is expected to enjoy weather conditions favorable for harvest preparations and operations. Hot temperatures across many areas are greatly facilitating the efficacy of harvest aids. Overall, the crop appears to be quite strong and early yield reports support optimistic expectations.
Outside of some dry planting conditions across portions of Australia, few international weather concerns are noted. China has off-loaded more than 14M bales of its massive reserve stockpile over the last several months, moving into what is scheduled to be the final week of auction sales for 2017.
More on Cotton
For all practical purposes, forward contracting is finished for the 2017 crop in the US. We’ve heard a few stories of sweetheart deals or last-minute producer sales, but each day pickers are moving across a wider section of the cotton belt, and the entire US cotton belt should be fully engaged by the end of the first week of October. We continue to recommend recapping early crop and looking for a strong spot basis.
Merchants with heavy purchases in South Texas and the Southeast will be looking to improve their inventories for obvious reasons, and an empty pipeline should provide eager buyers for nearby delivery.
For next week, the standard weekly technical analysis for and money flow into the Dec contract are bearish. On the upside, there seems to be some fundamental support just south of where the Dec contract finished the week.
Have a great weekend!
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