Crispus Nyaga

Crispus Nyaga is a Nairobi-based trader and analyst. He started trading more than 7 years ago as a student. He has published in several reputable websites like The Street, Benzinga, and Seeking Alpha. He focuses mostly on G20 currencies, commodities like Crude oil and Gold, and European and American large-cap companies.

Cotton is an important plant used in the manufacture numerous products, but primarily used in the production of fabrics. The crop is planted in a number of countries, with China, India, and United States being the top three producing countries. They produced 6.5 million tons, 6.4 million, and 3.5 million tons respectively every year. The biggest demand for the crop is from Asian countries like China because these are the countries which produce the most fabric.

As with all commodities, the price of cotton depends on the demand and supply. As the world’s population has continued to grow, it has led to more demand for fabric. In fact, the world’s population has more than doubled in the past 50 years. However, this demand has not translated to higher prices because science has created alternatives to cotton.

Yesterday, the price moved slightly higher after the United States Department of Agriculture (USDA) released the World Agricultural Supply and Demand Estimates (WASDE) report. This is a monthly report which gathers data from other organizations with the goal of providing guidance to the industry.

The report showed that for cotton, there was low consumption and higher ending stocks in March. In the United States, the consumption was about 3.1 million bales, which was the lowest level since the 1890s. The ending stocks were forecasted at 4.4 million bales, which was a slight increase from the previous estimate.  The statement added that:

Lower world consumption this month results in higher projected 2018/19 ending stocks, with little net change in the other components of the global balance sheet. World mill use is forecast about 400,000 bales lower this month. A 300,000-bale decline in Turkey – and smaller declines in the United States and Vietnam – more than offset smaller increases elsewhere. Lower imports for India, Turkey, and Vietnam are largely offset by an upward revision for China. Lower exports for India and Burkina Faso are largely offset by Australia and Turkey. Higher production for China is largely offset by a decline for Burkina Faso.

In the annual chart below, the price of cotton has risen from a low of $69.50 to a high of almost $80. This price is above the 21-day and 42-day moving averages while the signal line of the MACD has continued to move higher. The same is true with the Fisher Transform indicator as shown below. The price will therefore likely continue moving higher ahead of the next WASDE report. It may also depend on when the US will announce a deal with China.

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