Cotton Suffers, Moves Lower

In something of a classic buy-the-rumor/sell-the-fact event, the cotton market is materially lower Thursday morning. Heading into the Trump-Xi meeting, the market had run-up nearly 100 points; but once the gathering was done, with only generalities and no specifics, most U.S. agricultural markets declined.

The Federal Reserve bank, as expected, lowered interest rates by one-quarter point yesterday. However, following the event, Fed Chair Powell indicated there would be no other cuts this year. He attributed that decision to the lack of economic news due to the government shutdown. Thursday marks the 30th day of the shutdown; the longest shutdown was 34 days. 

Technically, total open interest has been down for the last two sessions, somewhat suggesting heavily net-short speculators may be beginning to exit. Yet, it is hard to know where their trigger point is and with December’s first notice day less than a month away, the clock is ticking.

Thursday begins the traditional long-only spec fund rolls, which typically start with the three-session Jim Rogers fund rolls. Cotton’s traditionally biggest long-only fund is Goldman Sachs, and they have their 5-session roll period beginning Nov. 7.

Recent heavy downpours in India may have damaged cotton crops after good monsoon rains this year encouraged expectations for a bumper crop. The question is how widespread the damage is. Weather watchers say the rains in Gujarat, Rajasthan, and some neighboring areas may have a negative impact on fiber quality, but no loss in production is expected. Of course, the heavy rains are forecasted to return. Southern India crop conditions will remain favorably rated with little change likely.

Farm Service Agency (FSA) operations remained largely paralyzed. The promised reopening of 2,100 FSA offices has not fully materialized, and concerns about insufficient funding for Marketing Assistance Loans (MAL) have now emerged. No loans were processed today, leaving producers without any MAL activity for the entire month of October.

Daily chart support for December cotton stands at 64.30 cents and 64.00 cents, with resistance at 66.20 cents and 66.75 cents. Thursday morning’s estimated volume is 23,072 contracts.

Keith Brown can be reached at commodityconsults@gmail.comor by calling (229) 890-7780.