Doane Cotton Commentary: Futures Continue to Sag

    Cotton futures continue to sag like a tire with a slow leak. Forecasts for some long-awaited rain in west Texas and a historical pattern of significant “drought breaking” changes in patterns for that part of the Plains around Memorial Day have cotton futures on the defensive.

    And now, today, we’re showing the CME cotton contract’s weekly chart and it’s not a pretty sight. The longterm uptrend has not only been violated, but repeatedly so. We rely on Fibonacci retracements of the entire winter/spring bull market to estimate how much downside there is. These targets lie at 38%, 50% and 62%, as indicated below:

    The first target is a 38% retracement by the July contract, not very far from today’s close. If that can’t stop this leak, and is violated, the next target would be a 50% retracement of the entire fall/winter rally from 76 to 96. And if THAT doesn’t halt the skid, the next target would be aa 62% retracement.

    The bottom line is the environment will become more favorable for cotton planting, germination and development across a vast majority of the region. Follow up rain will be important, however.

    We’ve said for weeks that it seemed the surprising and persistent strength in old crop cotton was the only logical reason for new crop strength in the face of huge global stocks. Thus, our advice to have half your expected production priced; unusually aggressive for this early in the crop year.

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