After returning to ten-year highs Monday, the overnight cotton market is probing for new highs. The market has been driven higher by the belief the U.S. crop is in trouble, and strong Chinese buying.
Monday USDA issued its weekly crop progress/condition data for past week. The report indicated the U.S. cotton crop was rated 65% good/excellent, up a point from last week. The 10-year average is 44% good/excellent. Texas stands at 62% good/excellent, compared to its ten-year average of 32%. The report also showed 60% of the crop had bolls open, up from 48% the previous week but below the 5-year average of 64%. Harvested acres came in at 11%, versus the 5-year average of 14%.
There are big financial worries concerning China, namely the situation with Evergrande, the huge real estate developer. If the company defaults it could send financial shockwaves throughout the Chinese economy and perhaps the world. Additionally, China’s GDP is forecasted to be weaker for 2021.
Goldman Sachs has lowered its economic outlook for China. The bank now expects China’s GDP to grow 7.8% in 2021 compared with the year ago pace of 8.2% year-on-year expansion. China has been a huge buyer of U.S. cotton, but there are some rising concerns that she could cancel some of those purchases next year, if her economy indeed weakens, or in light of the global shipping crisis.
Weather-wise, the 1 to 5-day forecast calls for moderate to heavy rainfall in Texas and Oklahoma. There will be moderate amounts of rainfall in Louisiana and Arkansas and mostly dry elsewhere.
For Tuesday, close-in support for December cotton is 97.60 and 95.50, while resistance stands at $1.005 and $1.50. The estimated morning volume is 16,100 contracts.