NY futures continued to slip this week, with December dropping another 90 points to close at 68.46 cents, while March gave up 100 points to close at 72.99 cents.
This week's price action followed a familiar pattern of late, whereas the market occasionally teases the bulls with a promising up day or two, only to turn right back down thereafter. The market's problem is that there is hardly any follow-through momentum on these up days, as they are primarily the result of some short covering rather than new longs sponsoring the gains.
So far any attempts to break out to the downside have been equally uninspiring, although with many of the outside markets facing renewed trouble it may just be a question of time until we see another test of the 66/67 cents support level in December.
Hurricane Gustav may not have delivered the punch that was feared by many, but it nonetheless brought copious amounts of rains to the cotton areas of the Mid-South, with Greenville, Mississippi, receiving no less than 11.09 inches since Monday, while the majority of other stations reported somewhere between 2 and 8 inches.
It is generally believed that the crop did not suffer too much from these rains because it is a bit later than usual and therefore not as vulnerable, but we feel that only time will show the true extent of any potential damage.
Let's not forget that this region has been rained on since early August, with some locations receiving as much as 20 inches since then, and there were reports of some boll rot before this latest round of downpours. What this area needs right now is a prolonged period of hot and dry weather.
However, the Atlantic is anything but quiet, as two additional storm systems are threatening the US cotton belt. As of this writing, Tropical Storm Hanna is expected to make landfall as a Hurricane somewhere in the Carolinas early Saturday morning. Following behind is Hurricane Ike, which right now seems to be headed for the southern tip of Florida, from where it could still enter the Gulf of Mexico.
Ike packs quite a punch at the moment and has the potential to do a lot of harm. The Southeast is in the same situation as the Mid-South in terms of being already too wet, and therefore any additional moisture from these two systems will not be beneficial.
The market seems to care little about the supply side at the moment and is more concerned about losing demand. The news out of China is not good in this regard, as local prices remain under pressure, signaling that there is plenty of cotton to satisfy mill demand at the moment, especially with new crop just around the corner.
We may therefore not see a lot of Chinese business in the foreseeable future and any potential supply shortage is probably not going to be noticeable until much later in the season.
Adding to the market's woes are concerns about a deepening global recession, as consumer confidence is falling everywhere along with stock and commodity markets. Money is leaving the markets either because investors prefer to move it to safety or because they are forced to de-leverage as credit becomes tighter and many of their bets are going sour. Over 200 Hedge Funds have closed shop so far this year, with the Ospraie Commodity Fund being the latest victim.
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