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Home / Knowledge / News / Textiles / Cotton's fundamentals continue to pressure prices near term
Cotton's fundamentals continue to pressure prices near term
03
May '08
The nearby July contract slipped below 70 cents on the week, marking its first venture there since February. The contract traded to a low of 69.52 on Thursday, but rebounded at the end of the week in the face of improving prices in other commodity markets as well as improving export sales. The midweek sell off was in line with the improving value of the U.S. dollar and the decline in other commodity prices.

Cotton's fundamentals continue to pressure prices near term. However, the upper sixty cent level should provide good price support. The new crop December fell below 80 cents and its longer term price level will be closely tied to crop conditions in the Northern Hemisphere. A U.S. crop in excess of 15 million bales or a world crop above 118-119 million bales will make the low eighty cent level very difficult to scale.

While the value of the U.S. dollar continues to slip in world currency markets, the dollar is demonstrating numerous signs that its long down trend may be coming to an end. This, in turn, has placed pressure on all commodity prices as once the dollar stabilizes and begins to trend higher, then the more foreign currency that will be required to purchase a fixed amount of cotton, or any other commodity.

Generally, the U.S. dollar trades inversely to cotton since cotton is an export commodity. This is a natural tendency as the lower the value of the dollar, the less foreign currency is required to purchase U.S. cotton. That is, there is a tendency for the demand for cotton to increase as its price--in local currency--moves lower.


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