DTN Cotton Open: Market Nervously Unchanged

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The cotton market traded both sides of unchanged overnight as traders square positions ahead of the President’s Day Holiday. The federal holiday will see the U.S. government, the postal service, the Federal Reserve, and the U.S. financial and commodities markets closed on Monday.

Despite record sales in yesterday’s export sales report, the market may be vulnerable to selling pressure today as heightened concerns about China’s ability to tame the COVID-19 has traders on pins-and-needles.

The latest on the coronavirus outbreak has some 65,000 people worldwide afflicted with the virus, with China’s total now above 60,000. China’s hardest-hit Hubei province saw cases rise by over 4,800 on Friday. China’s central bank said Friday the effects of the coronavirus outbreak will only be temporary and encourages foreign investors to set up businesses in China.

Incorporating Thursday’s supremely bullish export sales data from USDA, calculations indicate cumulative sales for 2019/2020 stands at 13.197 million bales. This is the strongest pace since 2010/2011 when sales reached some 14.364 million bales, when cotton traded at triple-digit price levels.

In percentage terms, current sales have reached 86% of USDA’s forecast for the current marketing year starting August 1, and are higher than the 5-year average pace of 80% sold for this time of year.

There has been a steep decline in open interest over the past few weeks. From its peak level of 267,540 contracts on February 3, the lowest price trading day, open interest currently stands at 222,310 contracts.

This sharp decline comes on the heels of the market’s recent tiny price rise, suggesting short-covering is behind the buying. Yet, if prices and open interest begin to collectively roll lower, some trade would interpret that action as long liquidation is taking place.

For Friday, support for March cotton lies at 67.10 cents and 66.75 cents, with resistance at 68.80 cents and 69.45 cents. Overnight estimated volume stands at 10,750 contracts.

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