DTN Cotton Open: Lower as Trade War Worsens

Cotton seedlings. ©Debra L Ferguson Stock Photography

The cotton market is markedly lower Wednesday as U.S.-China communication continues to worsen. As of now, the two sides are not even talking except for when both presidents publicly express their harsh rhetoric against the other’s policies.

The Trump Administration is now talking about restricting another Chinese tech company from doing business with the U.S., while China has been talking about another “Long March”. That phrase referenced the struggle of the communists to take over China in the civil war of the 1940’s.

Any way you cut it, the two sides are not moving towards resolution. In fact, the market is approaching the one-year anniversary of tariff implementation in June.

Various newswires have been reporting details of a planned aid package from the Trump Administration to U.S. Agriculture. However, thus far, USDA is denying the accuracy of those alleged support numbers, and even the provisions. Rumors also have it the total cost of such a package will exceed $20 billion.

Thursday, USDA will issue its weekly sales and exports data. This report will be keenly watched by traders as it coincides with the time when cotton prices precipitously dropped. It is believed those cheaper prices fostered extra buying among U.S. customers. Right now, for the market’s psyche, it needs to see big sales numbers.

The technical trend of the market remains down. To that end, the speculator, who was net-long in April has now reversed to a net-short position. Any rallies will most likely be met with their additional selling.

In addition to the trade war, another bearish driver against the market is the 2019 crop itself. Although there are a few “planting hitches” occurring, for the most part the crop is going in on its historical pace. Also, field conditions in West Texas are vastly improved this year over those last season.

That is, in 2018 some six million acres of West Texas cotton was in jeopardy of drought devastation. This season much of those same six million acres are embracing much improved weather. USDA will report on total cotton acres on the last day of June.

For today support for December cotton stands at 65.25 cents, with resistance at 67.72 cents. Overnight estimated volume is 7,575 contracts.

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