Dull affair in cotton trading last week

02 Mar '09

3 min read

Cotton prices had a one day bounce Thursday which was the first such change in direction, albeit a one day affair, for the first time in two weeks. Obviously sparked by the surprisingly strong export sales report.

The disappointing domestic consumption number didn't do much of anything since domestic off take is no longer particularly price sensitive. Trading in cotton was a dull affair this past week, changing few minds if any as witnessed by only slight changes in open interest.

Friday, May cotton posted new lows and new low close for the week in fact it was the lowest close since December 5th. Thursdays bounce was overdue but still unable to make new highs for the week.

For the week, May cotton lost 84 points while December cotton 74 points. For the month of February May lost 718 points.

Outside markets held reasonably well last week with the CRB gaining about 700 points off the multi-year lows.. Just as the grains were looking like another leg down was coming, they began to hold and commercial buying began to pick up.

Economic news continues to weigh on all the markets. The revised 4th quarter GDP figure showed the economy contracting at an annual rate of 6.2%, the sharpest drop since 1982.

While it is all over the March contract, For Monday there will be 5 notices on Monday bringing total deliveries to 291; all stopped by Cargill.

According to the estimate release at the annual outlook conference, USDA expects U.S. farmers to plant cotton on 8.5 million acres this year vs. their previous baseline projection of 8.4 million acres and the NCC survey of 8.11 million acres , This past year, plantings were on 9.47 million acres.

Export sales were surprising to most everyone except the seller but provided only a fleeting one day bounce. Sales the last two weeks have totaled more than a million bales and should be good again this week. However, shipments are absolutely pathetic and raise serious questions concerning the necessary letters of credit.

While market rallies will eventually be capped by selling from either or both India and China, near term fundamental resistance for May cotton comes from resistance on rallies above this week's 34.40 AWP.

From a technical standpoint, stochastics in the cotton market continue to be oversold and getting more so over the last two weeks and are now at the lowest level since the middle of October. However, for now the bears are clearly in control.

There are still a significant number buy stops building over the market. However, they are obviously above Thursdays 4490 high and the 4525 weekly high. Retracement points for May cotton since the severe breakdown on February 5079 are 4584 and 4678 with the 21 day moving average at 4708.

Swiss Financial Services

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