DTN Cotton Open: Higher on Better Sales

Cotton harvest. ©Debra L Ferguson

Cotton futures are higher Thursday morning as USDA reported better sales in its weekly export sales report. We indicated sales might be improving this week given the recent decline in the U.S. dollar. A summary of the report follows.

Net sales of 227,800 running bales (RB) for 2020/2021 were up noticeably from the previous week and up 51% from the prior 4-week average. Increases primarily for Pakistan (93,300 RB, including 800 RB switched from Indonesia), China (47,500 RB, including decreases of 10,600 RB), Mexico (33,800 RB), Vietnam (30,100 RB, including 1,100 RB switched from China and decreases of 100 RB), and Bangladesh (9,000 RB), were offset by reductions primarily for Japan (1,000 RB) and Indonesia (800 RB).

For 2021/2022, net sales of 21,300 RB were for China (17,200 RB) and Mexico (4,100 RB). Exports of 194,100 RB were up 1% from the previous week, but down 7% from the prior 4-week average. Exports were primarily to China (95,500 RB), Pakistan (29,100 RB), Vietnam (16,200 RB), Indonesia (12,600 RB), and Bangladesh (12,000 RB).

Net sales of Pima totaling 29,600 RB — a marketing-year high — were up 66% from the previous week and 53% from the prior 4-week average. Increases were primarily for China (9,800 RB), India (5,700 RB, including decreases of 100 RB), Pakistan (3,900 RB), Bangladesh (3,800 RB), and Turkey (1,300 RB).

Exports of 7,400 RB were down 41% from the previous week and 43% from the prior 4-week average. The destinations were primarily to India (3,400 RB), Peru (1,800 RB), China (1,100 RB), Bangladesh (600 RB), and Germany (200 RB).

The technical trend of cotton is obviously higher, but various technical indicators such as stochastics and the relative strength index (RSI) are signaling a deepening overbought situation. It’s known the speculators are heavily long in the market. The most recent CFTC data has them controlling the equivalent of six million bales of cotton. At some point there is bound to be a reckoning when these traders either take profits or roll to other contract months.

China announced plans to buy 500,000 metric tons (mt) of Xinjiang for its state reserves. The buying calendar stretches from Dec. 1 to March 1 of 2021. This action comes as certain countries are banning cotton textiles coming from this region based on alleged slave labor and other human rights violations.

The U.S. harvest continues and will be updated Monday afternoon by USDA. Currently, the 1- to 5-day outlook shows moderate rainfall across the Delta and the Southeast. The 6- to 10-day outlook simply calls for above average precipitation, while the 8- to 14-day outlook promotes a drier situation. As of last Monday, the U.S. crop harvest was 34% complete.

For Thursday, support for December Cotton stands at 70.50 cents and 70.00 cents, with resistance at 72.20 cents and 73.00 cents. Overnight estimated volume is 7,120 contracts.

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