Very few futures markets have moved as much (in terms of %) as the cotton market in 2014.
The fundamentals appear to be the main driver of this market as domestic production continues to soar. The previous WASDA report showed US production at 16.5 million bales, up 1.5 million from a month before. The upcoming report on August 12, will certainly provide us with more information, but for the time being, there doesn’t appear to be much evidence to expect a change in this trend.
Furthermore, world production continues to rise with large crops out of India. Given the large supply outlook in cotton combined with weak economic data out of China, the largest importer of cotton, the fundamental outlook for this market remains negative. Price did bounce off the 62.00 level in the overnight on a worse-than-anticipated crop condition report, which showed the percent of good/excellent crop was down to 53 from 54 in the week of 7/27. Despite the slightly lower percentage of good/excellent crop, the 53 figure is still 8% higher than it was last year (45%). Fighting this trend in cotton appears to be a very costly, uphill battle and the higher probability opportunity appears to be on the short side of this market (i.e. with the trend). Near-term resistance can be seen at 64.53 and 66.00 with the only relevant level of support around 62.00.
Dec. ‘14 Cotton, 30-minute Bar Chart (e-Signal)