DTN Cotton Close: Violates Support on Lower Finish

Cotton seedlings. ©Debra L Ferguson Stock Photography

The cotton market finished lower Wednesday, as both old and new crop contracts traded below their respective February lows. However, neither season closed below those lows, which can be viewed a positive factor — but only marginally so. The market remains firmly in the two-sided grips of the floundering U.S.-China trade talks.

As it stands, the Chinese are returning to Washington Wednesday to continue talks into the weekend. However, China has threatened to take “necessary retaliatory measures” if the Trump Administration makes good on its threat to lay down additional tariffs on Chinese imports.

Reports out from India suggests its 2018-19 crop is smaller and shrinking. To that end, there is talks that it may be forced to double the size of its imports. That amount would put India bringing in some 3.1 million bales. Indian officials suggest their exports could drop by as much as 40% from year ago levels. If that information proves accurate, then the U.S. stands to benefit. India and Brazil have hugely benefited from the punitive U.S. tariffs placed on China.

May cotton expired Wednesday at 71.45 cents. That price is under July by roughly 0.90 cent. Thus, the switch-of-contract event should be a tad bearish. However, interestingly and bearish as well, is the fact July cotton settled discount to new crop December. Old crop to trading at a discount to the new, suggests demand for the balance of the 2018-19 is waning.

Thursday, USDA will issue its weekly sales and export data, and then on Friday its monthly supply-demand report for May. Of course, all eyes will be on the U.S.-China trade talks on Friday as well.

For Wednesday, July cotton settled at 72.31 cents, down 0.87 cent, December finished at 72.42 cents, minus 0.21 cent and March ended at 73.23 cents, off 0.04 cent. Estimated volume was 44,400.

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