Top Commodities, Cotton Oulook October-December 2015 : Cotton was the worst-performing soft commodity in 2014; it moved 27.33% lower for the year. During the first quarter of 2015, cotton gained 4.7%. In Q2, the rally continued, with cotton posting another increase of 7.62%. In Q3, economic weakness in China, the world's largest cotton consumer, caused prices to move 11% lower. In 2015, the price of cotton is now only up 0.28%. Cotton traded as low as 57.05 and as high as 68.30 cents per pound during the first nine months of 2015. Cotton closed on September 30, 2015, at 60.44 cents per pound. In March 2011, cotton traded up to an all-time high of $2.27 per pound on supply shortages. Since then, prices have moved progressively lower.
Term structure in cotton futures has flattened, with future prices at similar levels across the board out to the end of 2016. Further deferred dates now trade in a contango with progressively higher deferred prices. This is an indication that cotton inventories, which were at record highs in the United States and China, are coming down. The potential for El Nino could affect this year's cotton crop. Open interest in cotton has remained stable around the 186,000-contract level during Q3, close to the level at the end of Q2.
Cotton Outlook for Q4 October-December 2015
The bear market in cotton has been firmly in place since 2011. Towards the end of Q2, cotton broke out to the upside; however, it failed during Q3 after making marginal new highs after the August USDA WASDE report said that cotton inventories were lower than market expectations. That rally quickly failed and cotton fell to the lowest level since the first quarter. Cotton had been making a series of higher lows and higher highs since January 2015, but the attempt at a rally failed. Current support for cotton lies at recent lows of 57.05 cents, and resistance is at the 68.30-cent level on weekly charts.
Cotton can be a very volatile and illiquid market once it starts to move.
The cotton price remains very low, at around the 60 cent per pound, particularly when one considers that it was at over $2 just a few years ago. All the bearish news is already in the price of cotton, therefore, price shocks if they occur, will lead to higher prices from current levels. El Nino is certainly one factor that could provide cotton with an upside shock.
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