DTN Cotton Open: Mixed Ahead of Phase One Signing

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Tractor lining up cotton modules during harvest. ©Debra L Ferguson

The cotton market is waffling between positive and negative levels Tuesday morning, as it awaits tomorrow’s historic ceremony to partially end the U.S.-China trade war. To that end, China will agree to buy massive amounts of U.S. goods from manufacturing products to agricultural foodstuffs in return for the U.S. dropping her tariffs, and removing China as a global currency manipulator.

For many traders and investors, compliance is the key. To that end, the U.S. does retain the right to redeploy any and all tariffs, including new ones, if China fails to live up to their side of the deal. Additionally, some government officials have suggested if there is to be a Phase Two, then Phase One must initially work.

In longstanding anticipation of Wednesday’s ceremony, cotton has staged a pretty decent rally, but with no sort of meaningful correction. During that up-move, managed-money speculators have flipped from net short to net long. In fact, with the market closing at its highest level since May 8, open interest continues to build, suggesting speculators are expanding their bullish position.

However, domestic carryout stands at 5.40 million bales, and generally speaking, world supply is large. Those numbers would seem to limit any major upside move. Thus, for prices to trade higher during the calendar, different bullish fundamentals would need to emerge, such as less acres, a weaker dollar, and/or poor field conditions.

For today, support for March cotton is 72.00 cents and 70.45 cents, with resistance at 72.00 cents and 72.50 cents. Overnight estimated volume stands at 9,347 contracts.

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