Bull Market in the Making?
Poor Cotton – the market just can’t seem to get a break. This year’s Cotton production is down sharply due to high Corn and Soybean prices, which led many producers to switch away to more profitable planting alternatives. Now with record high Wheat prices, some Cotton producers may switch to planting Wheat instead of Cotton this fall. In fact, in some parts of the country, growers can double-crop Soybeans behind Wheat and have twice the production instead of just one Cotton crop. This possibility has traders starting to look at the December 2008 Cotton contract – the first new-crop trading month for next year’s production – with an eye on what may be the start of a major bull market. Currently, Dec 08 Cotton is trading at around a 9-cent premium to the Dec 07 contract, reflecting the potential for even fewer planted acres next year. This premium may have to expand even further if Cotton expects to win back some acres from the grain complex next year.
Looking at the daily chart for December 2008 Cotton, we notice prices holding well above the major moving averages, with current prices hovering near the contract highs of 73.50 made back in July. The 14-day RSI has reached overbought territory, however, with a current reading of 78.19. Should bulls manage to take out the contract highs of 73.50, the next resistance point is seen at 75.00. Current support is seen at the 50-day moving average of 69.91. December 2008 Cotton closed on Friday at 72.65, up 0.80.
Mike Zarembski, Senior Commodity Analyst
