Summary
Higher lows for the fluffy fiber.
Tariffs have given the market a reason to pause.
WASDE was bullish.
The next technical level will propel cotton to another level this year.
Cotton is a highly volatile commodity in the world of futures.
In 2011, the price of cotton futures that trade on the Intercontinental Exchange hit their highest price in modern history when the fiber peaked at $2.27 per pound. At the turn of the century, in early 2000 the price of cotton futures was at the 50 cents per pound level, and in 2001 it hit a low of 28.2 cents. While the price of cotton declined from the 2001 highs to lows of 55.66 cents per pound in March 2016, cotton has been making higher lows since way back in 2001.
Many factors impact the price of cotton. Some producing countries around the world provide subsidies for cotton farmers to help them through periods where the price falls below production cost. Those subsidies distort the typical supply and demand analysis for the soft commodity. This year, the potential for tariffs by the U.S. and retaliation by China could also change the price of cotton. China imports lots of U.S. cotton each year. At the same time, the crop in 2018 will as always be a function of the weather across the major growing areas in the Southern United States. On both a technical and fundamental basis, the price of cotton is entering the period of uncertainty this year on a positive note.
Higher lows for the fluffy fiber
After its plunge from $2.27 in 2011 to 55.66 cents per pound in March 2016, the price of cotton has been in recovery mode. As the weekly chart highlights, the price of the fiber has moved appreciably higher and has developed a pattern of both higher lows and higher highs. The most recent peak came in early March of this year when the nearby futures contract that trades on the Intercontinental Exchange hit 87.75 per pound, the highest price level since June 2014 when cotton was on its way down from the record peak price. The weekly chart displays a bullish trading pattern, and rising volume and open interest are a technical validation of the price trend. In the world of futures, when volume and open interest move to the upside with price, it tends to be a supportive factor in the price of a commodity. Follow me for weekly, in-depth coverage of commodities – from gold and silver to grains and livestock to oil & gas – from the #2 ranked author in both commodities and precious metals on Seeking Alpha. I’m a Wall Street veteran who’s been actively watching the markets and trading in commodities for more than two decades. I know how to read these markets to find the most profitable opportunities.
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