So where do we go from here? As long as mills remain on the sidelines, merchants will likely continue to protect their unsold inventories by selling December. This situation is probably not going to change until mills return to the market in greater numbers. At that point merchants should be able to offload their physical longs and buy back short futures. Strangely enough, the cotton being hedged is mostly of foreign origin, since US inventories are overcommitted and US new crop is fairly well forward sold already, especially when we consider that the crop is getting smaller. This harbors certain dangers for the shorts, because they are basically hedging unsold foreign cotton by selling a growth short that is already overcommitted.
There will be a point of reckoning, but with the December notice period still five months away, it is not likely to be anytime soon. At the moment the trend is clearly pointing lower, based on fundamentals, technicals and a depressing macro picture. How much lower is anybody's guess, but looking at the chart we are probably headed for a retest of the 113 cents support area next.