It was a slow week for the benchmark ICE Dec contract, gaining only 58 points on an anemic 186 point trading range to finish the week at 62.47. We expected something near unchanged to lower on the week, and, 58 points really is pretty close to such on a week-to-week basis.
Trading was slow, at least in part, because so many traders were either on holiday in China or attending the ICA conference in Dubai (aka “holiday”). There was also relatively little to get excited about this week. US export sales picked up as expected, and damage from flooding in Pakistan is expected to cause a reduction in production and a subsequent increase in imports. While both of these items are somewhat positive for Dec futures, strengthening US currency is likely holding nearby business in check.
Looking forward to next week, some volatility will likely return as traders return to their desks. The weekly export report holds the potential to post W/W gains for sales, although the aforementioned diversions of this week could also cost the US sales on the week. Traders will also begin to prepare for next Fridays’ WASDE release.
At this time, private estimates vary across the board for the US. We see an opportunity for US ending stocks to be drawn down a bit via reduced production and perhaps increased exports. We will study the world situation further over the weekend, read some tea leaves, and/or consult the Ouija Board before publishing our final World S&D estimate. At this time we expect that it will not change a great deal, in aggregate.
The weekly technical analysis, as well as the longer-term fundamental analysis, point lower. Still, the possibility of somewhat friendly US export and WASDE reports at week’s end may be enough to push Dec a bit higher prior to their releases. The final directional result will depend largely on projections put forth in the WASDE report. Still, if the numbers are not out-and-out bullish, any spikes will likely be viewed as excellent selling opportunities.
The aggregate non-commercial sector increased its net short position significantly W/W while managed money firms were, on Sept 30, net short vs a small net long for the week prior. The commercial sector remained significantly short. We think all of this says that those closest to the industry do not see any horns on the horizon.
We’ll hold off on the official bias for next week for now (but if forced to say, we would opt for lower), but we do expect Dec to trade a range of 61.00 – 63.50 on the inside or 60.00 – 64.50 on the outside.
Louis W Rose IV, PhD has worked with cotton as a producer, consultant, analyst and trader. Rose holds degrees in Education, Agriculture, Plant Science and Business (MBA) from AR St Univ, OK St Univ and the Univ of Memphis, respectively. He has held positions with Aon Reinsurance and Cargill Cotton. Rose currently provides analytic services for various clients and media outlets and is the co-founder of Risk Analytics, LLC, producers of The Rose Report, which he authors. For more info on The Rose Report or analytic services, please visit: www.rosecottonreport.com