The weekly USDA Export Sales report seemed quite bullish for ICE cotton futures again this week. The stated total for the week ended January 23 came in at 479,700 running bales. That actually fell about 3% short of the massive result posted the previous week, but it virtually doubled the four-week average (up 90%). Such huge results for two straight weeks strongly suggest current U.S. cotton prices are proving very attractive to international customers. However, as the following chart shows, the nearby March contract proved able to sustain only a portion of its initial bullish response, thereby suggesting other factors were in play.
I’m inclined to blame a Wednesday afternoon report for the muted response, although futures didn’t seem to react all that badly to the news in overnight trading. That is, officials with the ICE exchange announced yesterday that certificated stocks deliverable against nearby futures had jumped from 76,075 bales on Monday to 136,657 running bales Tuesday afternoon.
Such a large surge indicates the U.S. cotton industry is very interested in delivery product against futures when the nearby March contract enters delivery in early March. The chart above suggests technical support around the 84.00-cent level is quite robust, but the fact that bulls couldn’t sustain moves above its 10-day moving average (magenta line) also implies resistance at slightly higher levels could quite substantial. The larger trend rather obviously appears to be pointing higher at this juncture.
However, we would warn that the market may stall during the days just ahead, simply because Friday marks the start of the Chinese New Year, thereby implying a lack of Chinese participation in the days just ahead.