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Cotton acreage likely to get bullish - USDA

26
Mar '08
Cotton followed grains higher again as the U.S. dollar took a big hit after bottoming out last week. Most of the commodities were stable to higher as the stock markets were up strong in Asia and Europe overnight. After quite a big pull back in the soft commodities last week, the markets bounced hard of the long term uptrend channel and may have some more room to test the upside.

Most longs are comfortable to wait for next weeks cotton acreage estimate by the USDA for the 08/09 crop which could be bullish. After that is established, we still have a very bearish fundamental picture to work through in cotton and if the market rallied higher we would expect good resistance in the spot month above 80 cents.

Demand at 70 cents and below is good but this bounce is more off of technical support along with other commodities which both locked up the limit today. After such a strong correction back to the previous trading range, there is little resistance above the market nearby which can prevent this market from going higher.

The trade and commercial positions will be less likely to sell into rallies after what happened at the beginning of March and but we did have falling open interest yesterday on a limit up move which shows more of a reduction in shorts than new longs which does not confirm a change in the downtrend momentum.

Technically, the RSI is near 40 and not showing oversold levels. We are seeing some resistance in the K'08 at 75 cents andwill have to see if we can break that level tomorrow and go higher.

If this market stalls and tries to come down after next weeks acreage report, we would be dangerously close to crossing the 9 and 50 day moving averages which would be very bearish and could violate the long term upward trend channel. Other commodities will be very important short term to the continued testing of the upside in cotton.

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