December cotton contracts eroded slightly due to limited volume. Trade will resume Thursday, although end of the week interest is expected to remain subdued.
Follow-through selling from Monday’s session saw the December contract reach a fresh low of 82.60, the lowest level traded in over six weeks. Stochastic momentum indicators on the daily chart are deeply oversold, leaving the market ripe for a sudden change in direction, although the longer-term weekly chart points to momentum trending lower and suggesting a further move is possible prior to reaching over-sold territory. December cotton settled at 82.81, down 12 points and March settled at $82.48, down 27 points. Lightly traded October settled at 83.80, up 3 points.
Support continues to come from commercial buying interest, with the Dec/March spread showing a bullish inverse that strengthened on Tuesday.
Noncommercial traders continue to liquidate. CFTC data as of June 21 shows noncommercial traders paring their bullish net-long position over the previous three weeks, although the net-long futures position remains high at 97,871 contracts. This compares to the 2018 weekly average of 104,530 contracts, while the 2017 weekly average points to an average weekly net-long futures position of just 78,000 contracts.
Should further weakness lie ahead, potential support may be seen at 80.31, the 50% retracement of the move from the December contract’s June 2017 low at 65.80 to the June 2018 high of 94.82 at 80.31. The weekly chart also points to potential support from weekly lows reached in May at $79.56.
The International Cotton Advisory Committee updated 2017/2018 world cotton ending stocks to 19.28 million metric tons, 170,000 mt lower than their prior estimate due to an increase in world consumption. Ending stocks for 2018/2019 were lowered 70,000 mt to 17.8 mmmt.