Following last month’s blow-off-top in July cotton, prices continue to work their way lower as participants shift their attention to new crop supply prospects. Crop conditions appear to be better than last year with 61% coming in at good to excellent, relative to the 52% 20-year average. With excellent crop conditions and significantly higher planted acreage, the fundamental situation in cotton appears to lend itself to lower prices as traders head into the July to December contract roll.

The technical action in cotton also points to lower prices as the market is in the process of producing its fourth session of consecutive lower prices. The market has confirmed a breakout below the ascending trendline and is now threatening the 74.81 – 74.35 area of technical support. If price action breaks below this area, the next level of technical support can be seen around 73.12 (Fibonacci retracement level), followed shortly thereafter by the area from 71.45 – 71.95.

Market sentiment leans negative heading into Friday’s USDA report, which has the potential to set the tone for the next 2-4 weeks of trading. So long as new crop cotton continues to progress nicely, look for cotton prices to continue to face downside pressure.

 

Jul ’17 Cotton Daily Chart