Cotton price prediction after reaching a decade-long high

Cotton price remains on an uptrend even after pulling back from the decade-long high reached in Tuesday’s session. Tight supplies and heightened demand are the key drivers.

Indian supplies

India is the leading producer of cotton in the world. As such, tight supplies in the country are a bullish trigger in the global markets. On Saturday, the Cotton Association of India (CAI) indicated that exports are expected to decline by 38% during the 2021/22 season. Besides, the pink bollworm invasion in he cotton-growing area of Punjab is expected to further weigh on the Indian output.

On a broader scale, China and the US are also experiencing production issues. The US, which is the second-largest cotton grower in the world, is facing rainfall-induced disruptions during the harvesting season in areas within the Mississippi Delta.

At the same time, heightened demand from the leading importer – China has further boosted cotton price. Notably, demand is also high in key textile hubs like Bangladesh, Indonesia, Vietnam, and Pakistan. Speculative buying is also at play as traders forecast a continuation of the bullish trend.

Cotton price prediction

On Tuesday, cotton price at the Intercontinental Exchange markets hit its highest level since June 2011 at 121.79. While it has since pulled back, it is trading steadily above the psychological level of 100. 

At the beginning of November 2020, the futures were finding resistance at around 70. Throughout the year, the agricultural commodity did not hit 80. Interestingly, this level has been a steady support zone in 2021.

Since the beginning of the year, it has surged by close to 50%. In October alone, it rose by 9.50%. At the time of writing, cotton price was down by 0.42% at 116.76.

 As the bullish outlook continues, the commodity will probably remain above the crucial level of 100 for a while. In the immediate term, I expect it to trade within a tight range of between the support level of 115.43 and the decade-long high of 121.79. A pullback would have the support decline to along the 25-day EMA of 109.36. On the upside, a move above the horizontal channel’s upper border will place the next target at 130.43.