The cotton market is apt to spend Wednesday attempting to hold on to Tuesday’s comeback rally. Monday saw the market collapse under the weight of an options expiration gone wrong. Succinctly, we think too many of the 78-calls were exercised long into the ICE Futures, and the market blew them out.
However, Tuesday saw a decent recovery, and now if the market can only tread water today, it may get to look at a friendly sales and export report tomorrow.
Overnight, China’s highly anticipated gross domestic data was released. On the whole it was slightly better than expected. Chinese growth was reported at 6.4% for the first quarter, higher on a year-over-year comparison.
Stronger industrial production and domestic retail sales were cited as strengths for boosting GDP. Global stock markets took the news as a big positive.
As of April 4, cumulative sales stand at 94.6% of USDA’s target. The five-year average pace for this time of year is 94.5%. Clearly, this is impressive action as China has not been a consistent participant in the U.S. sales and exports market.
It is thought once a trade deal is announced, sales may become even stronger. However, the market needs the reality of such, not the perception.
Going forward, Mother Nature holds the key to the prices of cotton. Currently, Texas has superior field conditions compared to its drought situation of 2018. Moreover, production increases are expected for India, China, Pakistan, and Brazil.
Essentially, if normal growing weather prevails, then global ending stocks might dramatically swell. Of course, the operative word is “normal”.
For today, support for July cotton stands at 78.00 cents and 77.25 cents, with resistance at 78.90 cents and 79.57 cents. Overnight volume is estimated at 8,368 contracts.