New crop cotton futures are weaker today, with December off 200+ at mid-day. Today’s trade is more in response to technical indicators.
From a fundamental perspective, there is still the possibility that Texas acreage abandonment will be as high as that seen in 1998 (~35%). Half of Texas is still categorized as being in an “extreme drought”. Parts of the southeast are dry, in particular, Georgia, the second largest cotton producing state, and the south Delta has turned hot and dry.
Any price pullback could be short lived. Some forecasts have Lubbock’s highs exceeding 100F all week and remaining dry. The fundamentals haven’t changed, and the prospect of U.S. cotton inventories being even tighter after 2011 is certainly a strong possibility. In the meantime, December ’11 could pull back to $1.30 on a technical correction. Afterward, a surge to $1.50 is on the horizon with the current weather outlook.
Thinking longer term, consider that the next 3 cotton crops are all valued at over $1 today. Dec. 11: $1.37, Dec. 12: $1.0350, Dec. 13: $1.0410.