Cotton (COTTON) futures on ICE are gaining more than 1% today and trying to rebound, following yesterday's declines. Hurricane Helene hit Florida with great force, causing a state of emergency in 61 of 67 regions in the state.
- The high level of rainfall in the Mississippi Delta and the so-called Cotton Belt could shake up the supply of cotton in the US market, as the hurricanes came at the peak of the harvest (Georgia), causing farmers to go into the field to harvest crop earlier, ahead of getting those wet, which in the case of cotton results in lower final supply as well as poorer quality of cotton bolls;
- Previously, the quality of the crop as well as the quantity planted in the US Southeast states looked optimistic, which was discounted by the market, with cotton trading below $70 per bale. It also appears that the prospect of a 'stimulus' in China may have had a positive impact on the demand outlook.
- On the other hand, however, in recent days we have seen a strengthening dollar and falling oil prices, which tends to support cotton price declines, lowering the production and freight costs of its substitute, polyester. For the past 2 sessions, the market has been unconcerned about Helene, which, while it may hit the South Georgia crop.... It has not yet been confirmed.
- Yesterday's weekly U.S. Department of Agriculture (USDA) export sales revealed a drop in cotton exports for the current marketing year, amounting to 87,800 bales. That's down 18% from the previous week and 33% percent below the 4-week average. Investors pointed to the data as one reason for subdued gains in cotton, despite the hurricane.
It seems that the market will remain sensitive to weather information. Unless Hurricane Helene is upgraded to a category higher than the current one (4), bulls may have to wait for the next USDA report to discount the prospect of potentially reduced supply. The magnitude of any reduction in crop estimates at this time is still unclear. On the other hand, meteorologists indicate that Hurricane Helene could still gain strength, and in such a scenario the cotton market is unlikely to wait for a new USDA report. A weaker dollar, along with economic treatments in China and drought in Brazil, could provide support for prices. Traders should also keep an eye on the weather in China's largest cotton-growing region, Xinjiang, where harvesting began yesterday; sudden rainfall could lower global supply.
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COTTON is gaining more than 1% today, but we can see that there has already been strong supply several times around $74 per bale. Buyers are not giving up, however, and the drop below the EMA100 (black line) was recently defended again, making another upward impulse still likely. The main resistance level is currently around $76 per bale, where we see the previous local peak. We can look for support at $72.5 and $71 per bale. 
Source: xStation5
