Cotton Sharply Higher, Driven by Chart
The cotton market cleared overhead resistance Monday to close above the all-psychologically important 70-cent level. Last week saw speculators add more long futures, swelling their bullish position to nearly 60,000 contracts. The huge increase in open interest is encouraging other traders to buy the trend as well. Fundamentally, traders believe the size of the 2020 crop is overstated by the government as two recent hurricanes pushed across the U.S. Delta and the Southeast with punishing winds and rains. With the crop at 80%+ bolls open, some traders fear most losses have yet to be tabulated.
Monday afternoon USDA will update its crop outlook in terms of percent gathered, percent bolls open and maybe one last crop condition number. To that end, the six- to 10-day forecast is calling for above normal rainfall for much of the U.S. Cotton Belt, including into east Texas.
From last week there was news China was halting purchases of Australian cotton. Recently, Australia has loudly criticized China for its human rights violation, including the use of slave labor in her textile factories. However, China may be attempting to make an example of Australia as other nations from the European Union, as well as the U.S., have been openly critical of China policies.
Technically, December cotton has returned positive on the year. Its highest trade for all of 2020 was 73 cents, made at the time of the phase-one trade treaty with China. However, almost immediately COVID-19 struck the country and cotton prices went spiraling down to the 50-cent mark, a decline of over 23.00 cents. Since that time, consistent Chinese buying, and then late season hurricanes, have helped the market stage a huge comeback.
For Monday, December cotton closed at 71.16 cents, up 1.24 cents, March settled at 71.83 cents, up 1.27 cents and December 2021 finished at 70.62 cents, up 1.10 cents. Estimated volume was 38,610 contracts.