Yesterday saw the biggest single session plunge in months on news that China was going to lower its price for Reserve cotton to domestic mills for the first time since last November. It was only a 4.2% lower then the previous minimum price. The bigger news was that Beijing made the announcement without any reference at all to easing import quotas in conjunction with purchases of state-owned cotton.
But then today it was U.S. news that seemed to produce an exaggerated response to the upside: A cotton ginnings report showed ginnings YTD about 2.5% lower than one would have expected if USDA’s current production estimate for 2013 is correct. That doesn’t seem like much, but it works out to over 300,000 bales “short of expectations”. With projected ending stocks already somewhat tight at 2.8 million bales, the idea that ending stocks might be as low as 2.5 million spooked a few traders because that would be less than a 70-day supply in a market where a 90-day supply is considered the “threshold of tightness.”
An even bigger event was technical in nature: The weekly cotton chart punched through the 2013 highs.
