Cotton price in sharp decline

Over the last two weeks the cotton price has collapsed by 10%, with most of the damage done in three trading days. The price has stabilized over the last week but one wonders whether buyers will come back in at the $83 level again.

The catalyst for the cotton price move has been the selling power of speculators following growing concerns that China is looking to end its current stockpiling policy. Like so many commodities, it is Chinese demand that drives the price, so the likelihood of Chinese imports cooling as they unwind the world’s biggest stockpile has sent shivers across markets. Historically, there is thinner natural demand during the Asian summer and so with the approaching winter months, a better ability to absorb this oversupply.

This shift in government policy would be a one-off event and could see US producers doing their own stockpiling to help prop up the cotton price and prevent the market becoming flooded with cheap supply.

As ever it is difficult to be 100% sure what the Chinese government will do, but if buyers don’t come into the market soon further technical levels could be broken with even lower lows set.

NY Cotton (Dec 13) chart

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