DTN Cotton Open: Stays Weak, Needs New Bullish Inputs

After a magnificent 25% rise in price off the August harvest lows, the market has hit the proverbial brick wall. Despite last week’s signing of the Phase One trade agreement, passage of the USMCA, and a dose of strong export sales, the market has stumbled. Apparently, all of those friendly tenets were anticipated to the point their reality resulted in a buy-the rumor-sell-the-fact response.

Still from its January 13 high of 71.92 cents, spot March has fallen some 325 points to its most recent low, but after a small recovery, now stands some 205 points lower Friday morning.

As of Friday, all technical indicators remain in bullish mode, but the market is in need of new, compelling bullish information to continue higher. To that end, acre surveys from the NCC and USDA are still to come, which ought to establish the acre basis for 2020.

In other news, Friday morning USDA reported net sales of 307,800 bales for the 2019/2020 season. That amount was 32% from the previous week and up 61% from the prior 4-week average.

Increases were for Turkey (82,700), Pakistan (72,200), Vietnam (70,800), Indonesia (33,600), and Egypt (17,600). There were net reductions for India of 25,000 bales.

For 2020/2021, total sales were 13,200 bales, all for Vietnam. Exports of 282,600 RB were down 6% from the previous week, but up 20% on the prior 4-week average. Destinations were primarily Vietnam (80,500), Pakistan (44,700), China (41,400), Turkey (29,000), and Mexico (20,600).

Net sales of Pima totaling 20,200 bales were down 41% from the previous week, but up 9% on the prior 4-week average. Increases were primarily for India (6,400), China (6,000), Pakistan (2,400), Bangladesh (2,400), and Vietnam (900).

Exports of 6,500 bales were down 16% from the previous week and 7% from the prior 4-week average. The primary destinations were Peru (1,600), India (900), Vietnam (900), Pakistan (700), and El Salvador (600).

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Cotton prices in India have fallen some 3% over the past two weeks, and expectations call for domestic prices to continue weak for the next two months. The main reason is low demand from China, causing buildup in Indian stocks.

The Cotton Corporation of India has procured 4 million bales (170 kg) out of the 10 million bales targeted so far, based on a minimum support price (MSP). This year the government expects cotton production to be 32.26 million bales.

According to the CCC, domestic cotton prices are 5% higher than the international prices due to the higher MSP program. Naturally, this makes India cotton momentarily noncompetitive in the global export market.

For Friday, support March cotton is 69.50 cents and 68.55 cents, with resistance at 70.50 cents and 71.10 cents. Overnight estimated volume is 6,590 contracts.

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