Source: Bloomberg

May 22, 2013

Cotton futures already headed for their biggest monthly drop since September will fall further to the lowest price since late January, according to technical analysis by Michael T. Sweeney at broker Marex Spectron. After a five-month rally that sent cotton to an 11-month high of 93.93 cents a pound on March 15, prices on ICE Futures U.S. fell below a 50-day moving average of 85.47 cents on April 8.

The commodity slid 1.1 percent last month and was down 4.1 percent in May as of yesterday, when it closed at 83.86 cents, the first settlement this year below the 100-day moving average. "A close below the 100-day moving average could signal a breakdown" for prices, with "the next downside target at 81.25 cents," Sweeney, who is based in New York, said by e-mail yesterday.

"Speculators are long in a major way," after the rally in March, which means prices probably will drop as low as 78.75 cents, the cheapest since Jan. 22, he said. Cotton rallied as much as 25 percent this year on prospects for a drop in global production, including from the U.S., the world's largest exporter. Prices are down 11 percent from the peak partly because of lower imports projected for China, the top user.

As of May 14, money managers held a net-long position, or bets on higher prices, in 62,386 futures and options contracts, compared with a net-short position of 19,327 contracts in mid-November, government data show.

While U.S. farmers as of May 19 planted 39 percent of intended acres, below the five-year average of 52 percent, the total was up from 23 percent a week earlier, government data show.

"At 23 percent, it seemed the plantings were not going to get there," Sweeney said in a telephone interview. "Now, it feels that they are going to get it done." In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes.

(Source: Bloomberg)