Morning Futures Roundup

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No Soft Landing for Cotton Prices

   Fundamentals
Other than Natural Gas futures, no market has been mired in a bear market as long as Cotton futures, as lead month futures prices have fallen over 60% during the past 12 months. Record high prices had spurred a global Cotton production surge during the past year, which caused supplies to increase sharply at the same time the Chinese growth rate has stalled. China is the world's largest consumer of Cotton, and any signs of a slowdown in Chinese demand are considered bearish for prices.

Here in the U.S., producers are getting ready to make their planting decisions for the 2012 crop year, and analysts believe producers will plant 13.7 million acres to Cotton this season, which is down nearly 1 million acres from last season. Lower Cotton prices coupled with continued dry conditions in Texas may spur producers to look for alternative crops such as Soybeans and peanuts, which are currently more attractively priced than Cotton. Despite potentially lower U.S. Cotton acreage this season, we could see higher U.S. Cotton production, as the USDA expects a lower abandonment rate than last year, as the Texas crop was ravaged by extremely dry conditions in 2011.

Any improvement in weather conditions this year can have a great effect on yields, with some forecasters looking for a final harvest nearly 4 million bales higher than the 15.67 million bales harvested last year. If true, we could see the current global Cotton surplus increase, especially if China is nearly through with its restocking efforts and its economic growth rate does moderate in the coming months.

   Technical Notes
Looking at the daily chart for July Cotton, we notice prices attempting to rally off recent lows. Prices are not attempting to rally to the 20-day moving average which is currently hovering just above current prices, near the 90.50 level. The 14-day RSI has turned up from near oversold levels, with a current reading of 43.14. Support is seen at the contract low made back in December of last year at 84.01, with resistance found at the recent high of 95.12 made on March 6th.

  
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