Cotton futures maintained their bearish momentum this week as prices struggled to trade back above new resistance levels. December cotton is trading about 60 points lower around midday on Tuesday. Prices are currently testing last Wednesday’s low of 64.70 cents a pound. The next downside target would be the “Liberation Day” low of 64.24 if those levels fail to hold. 

To reiterate from previous reports, speculators hold a historically large net short position as prices push to fresh lows. Strong commercial buying and bearish fundamentals have given traders little reason to reverse course on their short positions. 

The lack of USDA data from the partial government shutdown has left the broader market in the dark. What we do know is that export sales have been dismal this season. Current commitments are running at the slowest pace since the 2015/16 season, according to the latest export sales report.

The lack of cotton exports to China has played a major role in the current weakness. China is importing cotton at the slowest pace in over 20 years, according to Chinese customs data tracked by Bloomberg. Last year, the country imported record volumes, led by early imports from the U.S., as well as large shipments from Brazil and Australia. 

Pakistan is expected to import about 7 million bales of cotton this year due to flooding taking out a substantial portion of the crop this summer. However, that devastation hasn’t translated into larger U.S. sales since the country imported significant volumes from the U.S. and Brazil earlier this year. 

Overall, the weather is favorable for cotton harvest. Some showers are impacting progress in the Southeast, though the forecast has been drier for West Texas. What is concerning is the growing moisture deficits in the cotton belt. The past 30 days have been much drier than average. 

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PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. FUTURES TRADING INVOLVES SUBSTANTIAL RISK AND IS NOT SUITABLE FOR ALL INVESTORS.