Despite Wednesday’s disturbing news that China does not want to commit to a specific dollar amount of U.S. farm products, the cotton market is higher Thursday morning. Additionally, the Chinese have reiterated their demands that U.S. tariffs must be rolled back before a trade deal can be contemplated. Thus, roughly after 17 months, the two sides appear to be back at square one.
Brazil’s currency, the real, has pushed lower in five out of the last six sessions, and now stands at its lowest level since September. A cheaper real tends to enhance Brazilian exports all the more. The month of October supposedly was a record export month for Brazil cotton, the majority of which went to China. Meanwhile, the U.S. Dollar continues to outperform all global currencies. This difference is due in part to the strength of the U.S. economy, but also because other nations are deliberately devaluing their money in order to gain an export advantage.
Some traders are concerned about the sluggishness of the cotton market. They see the Dow Jones at all-time highs, plus USDA’s bullish supply-demand data of last Friday, and wonder why cotton is not performing better. However, the market is in the thick of harvest, which is a seasonal time of depressed prices, plus the U.S. dollar remains very stout. However, Friday’s weekly sales and exports can set a better tone for the trade. Last week’s number, combining both crop seasons was 283,100 bales. Moreover China was a buyer of 25,000 bales in the 2019-20 crop year.
For Thursday, support for December Cotton lies at 65.50 cents, and 65.00 cents, with resistance at 66.90 cents and 67.20 cents. Overnight estimated volume is 15,709 contracts.