Cotton trades in negative territory through out last week
07 Jul '08
4 min read
Cotton futures fell to their lowest level in three weeks Thursday. However, As we went into the long Independence Day weekend, after hitting a low 727 points below Mondays high, the cotton market rallied sharply at the close. Dec cotton settled up six for the day but 109 above the lows. December still lost 605 points for the week
Other than a tiny little blip right after the opening Monday morning, the market never traded in positive territory for the week. This despite the CRB Index of 19 commodities hitting all time highs last week
The initial catalyst was technical weakness following the "outside day range" of the previous Friday. Downside momentum exploded following the June 30 plantings report that showed US producers had planted and intended to plant a total of 9.246 million acres.
Reports are bullish or bearish only in relation to what traders are looking for and since this is at the high end of expectations, the initial reaction was obviously bearish!! The widespread talk of the huge losses on the high plains of Texas had some traders looking for an unrealistically low acreage.
Of course, most of potential abandonment occurred after the first week of June. It will be The August USDA will give us the acres for harvest and a projected yield. That will be a whole new ball game
Very respected surveys of a week or so ago show losses of ¾ million acres with another ½ million damaged but also adding to the downside pressure were the beneficial rains falling somewhere on the Plains almost nightly. Reliable standing acreage estimates are moving targets.
The weekly progress and condition report that USDA releases each Monday afternoon showed the US crop as a whole only 89.8% of normal as of last Sunday vs.. a rating of 95.1% this time last year. However, in Texas, where more than half the US cotton acreage is found, the crop was rated at only 80% of normal vs.. a 96% rating a year earlier.
The export sale report this week had a bit of a pleasant surprise in it. Fresh sales were still very slow as is usually the case going into the summer. Besides we have already sold more than enough cotton to meet the USDA objective.
However, shipments of over 380,000 bales were the best of the marketing year - that is more than a 1/3 more than either last week or the average of the last four weeks. The primary destination was China. Have we turned the corner on shipments or is this a one-time anomaly; only time will tell.
Street talk had indicated mill interest and bids, including Chinese, believed to be in the 7400 area. However, understandably disturbing talk has been circulating for the last week concerning the Chinese government subsidizing rail transportation costs on Xinjiang cotton to make their own domestic cotton more competitive than imported cotton. Their Ministry of Finance released details of the 400 Yuan per ton subsidy Friday.
From a technical perspective, the bears clearly have the upper hand. However, late session action both Wednesday and Thursday portend support building. Look for a test of resistance 7775 and 7825. A close above 7900 would negative downside objectives.
marketing@alchempro.com
