Is there an oversupply of cotton?

January 17, 2018 09:59 AM

General Comments: Futures were sharply lower yesterday and trends are sideways to down on the daily and weekly charts.  Futures are now at or near recent lows in both markets due to the weaker price action in the last couple of sessions. Brazil is considering the end of import tariffs on U.S. ethanol and this appeared to trigger selling in sugar as more cane can now be processed into sweetener. Price action had been strong due to the strong demand for ethanol that has diverted some Brazil mill production away from sugar. 

However, prices fell apart on forecasts for excessive production from the ISO and from private analytical firms. Mills in Brazil have decided to make more ethanol as world crude oil and products prices have been very strong. Ideas are that petroleum prices can continue strong as OPEC and Russia have agreed to keep production constrained compared to world demand.

Overnight News: Brazil should feature light showers each day. Temperatures should be near to above normal 

Chart Trends: Trends in New York are down with objectives of 1370 and 1260 March. Support is at 1350, 1320, and 1290 March, and resistance is at 1410, 1450, and 1480 March. Trends in London are down with no objectives. Support is at 361.00, 358.00, and 355.00 March, and resistance is at 367.00, 371.00, and 379.00 March.

General Comments:  Futures closed higher in New York and lower in London in currency related trading.  Both markets are in the trading range and could be forming bottoms. The West African main harvest has started to wind down and focus is shifting to the next round of grind data and the weather for the West African mid crop. Ideas are that cocoa demand from grinders can be strong this quarter due to the weaker prices, and the EUJ grind announced last week was very strong and well above trade expectations. 

The market is also on alert for the Harmattan winds that can suck moisture from the soil and trees and really hurt bean quality and production.  These winds have not developed as of yet, but could at any time.  Arrivals in West Africa remain behind year ago levels when they were expected to be above year ago levels. Prices are weak overall due to the ongoing harvest but have found some good buying interest at current levels as some are now viewing the market as cheap. World supply ideas remain high. 

Overnight News: Mostly dry conditions are expected in West Africa.  Temperatures will average above normal.  Malaysia and Indonesia should see frequent showers. Temperatures should average above normal.  Brazil will get dry conditions and near to above normal temperatures. ICE certified stocks are higher today at 3.626 million bags.   

Chart Trends: Trends in New York are mixed. Support is at 1900, 1870, and 1850 March, with resistance at 1960, 2000, and 2030 March. Trends in London are mixed.Support is at 1370, 1330, and 1320 March, with resistance at 1410, 1440, and 1450 March.

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About the Author

Jack Scoville is a veteran futures market analyst specializing in grains, softs, rice, oilseeds, and tropical products such as coffee and sugar. His industry contacts in South America, Europe, Asia, and North America provide him with a unique and comprehensive view of these markets. Jack began working in the futures industry over 30 years ago and spent 10 years working on the floor of the Chicago Board of Trade in various roles, starting with The PRICE Futures Group since it was established in 1988.