A 13-month price low was all the market could stomach as it broke higher on end of the week trading. Just as the big bear was preparing to maul, the market prices jumped some 250 points higher before settling the week 169 points higher, basis the nearby March futures contract.
Mills were aggressive buyers and helped rally the market. Prices are now down some 22 cents from earlier highs and off about 12 cents from the beginning of the tariff dispute with China. Nevertheless, the bearish fundamentals do outweigh the ammunition held by the bulls. It is our tradition to begin the New Year with a listing of bullish and bearish factors facing the market.
Typically, a listing of this nature would overwhelm any set of bearish factors. Yet, as the lyric goes, “The times, they are a changing.”
- World carryover is declining.
- Chinese carryover is declining.
- World production is declining.
- World consumption is increasing.
- India’s smallest crop in 9 years is an impending disaster, and will likely impact trading worldwide.
- Stocks have been reduced by China and India.
No doubt one can add a few more obvious points to the price equation, but these are the primary bearish factors.
- U.S. China trade war. Agriculture, specifically cotton, has no seat at the bargaining table.
- Turkey and China, two of the largest import markets, are effectively closed to some 4 billion bales of U.S. cotton.
- India and China, the world’s two largest textile economies, are reducing cotton spinning.
- Chinese economy is slowing down.
- European economy is slowing down.
- Brazil is rapidly expanding acreage for cotton and soy production.
- U.S. is facing a 4.5-5.0 million bale increase in production.
- Crude oil prices will reinvent the age of cheap polyester.
Trading in such an uncertain market has seen all traditional support levels fail and trading range has now dropped to the 70-72 cent level.
While a very bullish set of circumstance do exist in India, the market has found it much easier to fall than to hold what was thought to be very strong price supports points.
The door is now open to see prices fall to the 64 cent level on a move back to 70 cents.