Market trade in a narrow range
Though trading was quiet in cotton futures in the morning, the options pit had a busy start. Good volume of bullish options hit the market such as 1,000 lots December contract 80/90 put spreads sold for 805 points by one group and 300 lots 75/85 call spreads bought at 285 points by another group. The day's high was established at 74.16 just after the options pit open. Cotton traded back and forth in light volume but mostly in the negative area for the remaining session. The settlement came in at 73.24 basis Z'08.
The summer lull was felt by the cotton market this week. As of end of yesterday, we dropped close to 50 points on December contract during the course of the week, and total open interest dropped 2,700 contracts. The general commodity index has experienced massive sell off led by the hefty loss in crude oil. After the biggest ever $16 drop in 3 days, $130 per barrel seems to be a critical area.
Although influenced by the outside markets, cotton traded on good cash price basis and performed relatively better. However, the daily trading volume has been unimpressive, which failed to create momentum to push the market out of near term sideways trading range. Weather wise Texas received more rain this week, which continues to improve the crop conditions.
The commodity index started its rally since beginning of June and topped out a month later. Crude oil closed at $128.88 per barrel and experts expect the next low to be around $122.00. Cotton, at the moment and after having lost nearly 10 cents since end of June, seems to have found a comfortable short term sideways trading area.
The trading range is becoming narrower with lower highs and higher lows. December contract tested yet again the trend line resistance level of 74.20 today but failed to go though. Around 72 cents to the down side also proves to have good support.
Another week of good moisture across much of the South and High Plains, and Rolling Plains of Texas continues to improve crop conditions. It is a welcome surprise to get rain in July which is typically a very dry month for this area. Only a few areas to the south/southwest (Lamesa, O'Donnell, Seminole) are on the short side for moisture. Unfortunately, that is where much of the dryland cotton is grown.
Local forecasts call for a chance of isolated storms today and early next week. But for the most part temps will warm back up into the mid 90's...perfect after the rains this past week. Overall we are behind in progression. The hot dry weather that is forecast should help things catch up. Below is a breakdown by location in comparison to Lubbock:
Panhandle - a few isolated fields have been lost to hail around Carson County Gin. Overall, the crop is in great shape. It is running a bit behind and just now starting to bloom. The gin in Spearman said that the northernmost Panhandle into Oklahoma and Kansas have a very good season going. They have hadlots of rain and need dry, hot temps now. Many dryland fields looked just as good as the irrigated.