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January 27, 2012

Cotton had three consecutive down days going into Friday's trading where it found the technical support mentioned last week. Cotton news was light on the week as Chinese mills were on holiday all week. The cotton price cycle projected lower prices during the past week, but now suggests higher prices going into March. Too, with Chinese mills going back to work, the export market should clear solid sales, especially since the nearby March contracted traded to a low of 95.30 on Friday.

Nevertheless, the market could be reluctant to move back near or above the one dollar mark until planting weather is better defined.

As stated last week the run to the dollar mark needed to occur immediately as the market would fail if prices could not capture that mark in short order. As a friend in Texas commented, "it just ran out of steam." Yet, the fire is still roaring and the boiler has taken on more water; thus, the steam can be recharged in a matter of a couple of days.

In line with the Chinese notion that their crop could be as much as 3.3 million bales below the USDA estimate comes word that the Indian crop will likely be smaller than expected by as much as 750,000 bales. We will see how USDA judges these reports in less than two weeks in its February supply demand report.

Another point in the bulls favor is that international consumption is showing signs of improvement. The current week could play big in that revelation as the market will look to see how active the Chinese and Southeast Asian mills are. Yet, some of this demand is coming at the expense of Pakistan where an abnormal number of mills are either running slow, or in some cases entirely closed.

The new crop December continues to challenge-and challenge-the 95 cent level, trading to that level all week-day after day-of this past week (today's high was just 94.89). Look at it as a battering ram pounding into the wall time and time again. If this keeps up the wall will fall and December '12 will be looking for a run to the 98 to 103 cent range.

 

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