Even though there is not much physical business going on, there were several factors that gave the market a firmer appearance this week. First of all there was the fact that most of the certificated stock is not changing ownership.
At this point, only 92'400 of the 730'263 bales have been tendered and since there were only 2'115 contracts (= 211'500 bales) of open interest remaining yesterday, the story is not going to change much in the final days of the December contract.
One surprising twist in this certificated stock saga is that Dunavant, who issued all 924 notices on First Notice Day, switched sides a day later, since they received 36 of the 138 notices that were re-tendered on Wednesday.
In order to receive notices, one has to be futures long, which means that as of yesterday all of the big merchants were positioned on the long side.
This confirms that the board has become the cheapest source for cash cotton in the US and we expect to see large de-certifications in the weeks ahead, because the spread between December and March never got quite wide enough to justify carrying the stock into March.
Once this block of old crop cotton disappears, it will be impossible to replace it at the current AWP vs. March spread. Therefore, as long as NY futures remain undervalued in relation to the AWP, the board has to be viewed as a cash market and this should keep its price well supported.
Another friendly factor is the reshuffling in the A-index. This morning, the Syrian quote jumped by 150 points and went 'nominal', which is a precursor for its disappearance in the not too distant future.
marketing@alchempro.com
