DTN Cotton Open: Elevated on China Hopes

Cotton in no-till wheat stubble near Hereford, Texas. Photo: Larry Stalcup

Despite Monday’s disappointing session, the cotton market is back higher Tuesday morning. It still has high hopes of not only an eventual trade deal with China, but immediate Chinese buying of U.S. cotton as well. In their meeting on Saturday, President Xi indicated even as the trade talks renew, China would be a substantial buyer of U.S. farm products. To that end, the market hopes to see additional hefty Chinese purchases in the coming weekly sales and exports reports.

Yesterday, USDA reported on the condition of the 2019 Crop. Overall, the crop is rated 52% good/excellent, up 2% from last week. However, the very poor/poor rating was up 1% at 18%. Interestingly, the ten-year pace for the good/excellent category for this time of the year is 55%, and for the very poor/poor it is 19%.

Of the top 15 states, 9 reported better ratings, 3 worse, and 3 were unchanged. Regarding the good/excellent category, the top two producing states, Texas and Georgia, were 44%, up 3%, and 58%, up 1% respectively.

Technically, the trend of cotton is down, yet its path is currently being challenged. Most traders agree the best description of bearish market is one in which there is a long series of lower lows, corrected by lower highs. However, once a previous “lower high” is overlapped, it cannot only change the look of the chart, but the attitude of bearish traders.

Ever since the Easter high, December cotton has been steadily posting a bearish sequence of lower lows followed by lower highs. Now, with certain speculators holding a massive net-short position, the odds of seeing the market trade above a previous lower high have greatly increased, which potentially increases the chance for a summer rally. Time will tell on that.

For today, today support for December cotton is 66.10 cents and 65.52 cents, with resistance at 68.38 cents and 68.60 cents. Overnight estimated volume is 4,469 contracts.

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