In a similar setup to last summer, the US crop might continue to deteriorate but world supply/demand setup is quite bearish, and a smaller than expected US crop might not alter the big picture fundamentals much. The slowdown in the global economy could hurt demand, and there is a massive (and record) forecast for global ending stocks for the 2012/13 season. July cotton has given back most of its 12-session, 35.4% jump to 89.48, trading as low as 68.31 yesterday. Deteriorating crop conditions in the US provided some temporary support, but December cotton opened on its highs and closed moderately lower on the session, near the lows of the day. Dry and scorchingly hot weather in the southern plains failed to provide much support. The USDA attache sees a much smaller Egyptian crop this year. The weekly Export Sales report on Thursday and the Planted Acreage report on Friday will help dictate direction over the short term. It will be difficult for the market to overcome the bearish macroeconomic effect on cotton demand and the massive world supply. Crop conditions in Texas dropped to 36% good to excellent this past week, a decline of 3%, but that is still up from 14% good to excellent last year.
Without significant help from the weather or outside market forces, the cotton market will face record high global ending stocks for the 2012/13 season, and lower prices may be necessary to stimulate demand.

Technical Analysis

COTTON (DEC): Declining momentum studies in the neutral zone will tend to reinforce lower price action. The close under the 18-day moving average indicates the intermediate-term trend could be turning down. The swing indicator gave a moderately negative reading with the close below the 1st support number. The next downside objective is now at 66.43. The next area of resistance is around 69.33 and 70.94, while 1st support hits today at 67.07 and below there at 66.43.

StockMarketNews Research Team