After a week of bearish pounding by the bears, the cotton market is attempting a snap-up today. This week saw the market down some 400 points from its Friday close of last week, resulting in an even worse oversold condition. Open interest, the total number of all longs and shorts, is at its highest level since June 14. This move possibly reflects the expanding net-short position held by bearish speculators. As it stands, speculators have been and are still record net-short, and seemingly padding their position.
The cotton market is suffering from a cluster of bearish fundamentals, two of which are lack of a trade deal with China, and a robust U.S. Crop in the making. To the former, just this week President Trump tweeted the trade talks “have a long way to go”. This statement was in direct contrast to previous predictions about a speedy trade compromise. Currently, the talks continue to drag on, and some U.S. officials seem to be prepping the country for the possibly that trade deal is unlikely to happen this year.
Regarding the U.S. 2019 crop, it seems to be swelling. USDA’s last report pegged it at 22 million bales, a 14-year high. Additionally, the current crop is rated 56% good/excellent. Although Texas has been dry of late, the 6 to 10 day forecast for the Lone Star State calls for above normal precipitation for west Texas.
As of July 11, cumulative sales stand at 27.4% of USDA’s 2019/2020 projection. The five-year average for this time of year is 25%. Recently, U.S. sales have been off as China is a non-participant in the U.S. market, continuing to conduct domestic auctions for strategic reserves as a way to avoid contact with the U.S. market.
For today, support for December cotton is yesterday’s low of 61.66 cents. Close-in resistance is at 62.70 cents and 63.20 cents. Overnight estimated volume is 3,850 contracts.