Overnight, the market has traded both sides of its higher Thursday’s close. Traders are wary of July’s options expiration Friday, the overall bearish price trend, and a bit of bearish Chinese economic news. To the latter, overnight, China announced its industrial production was pegged at its slowest growth pace in 17 years. For the month of May, the rate was a plus 5% year-on-year, which was below analysts’ expectations of 5.5% growth. The world’s second largest economy has been showing signs of weakening for many months given the trade war with the U.S.
Since its Easter high, December cotton has dropped some 13.00 cents, finally halting at the June low of 64.70 cents this past Monday. In that steep fall, the market understandably became oversold and is looking for any worthwhile reason to initiate a upward correction. However, with planted acres and the G-20 meeting still to see, the market may be hard-pressed to unfold any sort of banner rally.
Monday will bring USDA’s planting progress and condition report. We continue to hear of many trouble spots across the country, Moreover, there are other trouble locales in the world. China is battling what we think is a huge infestation of the fall armyworm, and India’s initial monsoons are coming in quite weak.
As of June 9, cumulative U.S. cotton sales stand at 23.7% for the 2019-20 season. The five-year average for this time of year is 19.6%. Sales of 200,000 are needed each week to meet the government’s forecast.
In an interesting twist, the China Cotton Association has petitioned the government for waivers on import duties for uncombed U.S. cotton. The move is to avoid the tariffs the Chinese government has placed on U.S. imports.
One last fundamental to know is open interest (the total of all market participants) for ICE Cotton Futures is at its lowest point since the week of July 3, 2017. Sometimes extremes in open interest has led to major market turnarounds.
For Friday, support for December cotton stands at 65.88 cents and 64.70 cents, with resistance at 68.60 cents and 70.00 cents. Overnight estimated volume is 8,320 contracts.