Cotton futures below 56c for March inspite of China & India purchases
11 Dec '06
3 min read
USDA's December supply demand report will be released on Monday with only limited changes expected. The U.S. crop could be slightly larger, as will be some other crops.
Yet, the overall world production level will likely be only marginally higher. The principal change that many expect is that USDA will lower its forecast of U.S. exports, currently at 16.2 million bales.
It is noted that actual sales are some 3.5-4.0 million bales behind last seasons pace and shipments are about 1.5 million behind. To meet the USDA forecast weekly sales would have to average more than 300,000 for the remainder of the 2006-07 marketing year.
Too, weekly shipment would have to press near 400,000 bales for the remainder of the year. While such is possible, it is not very probable. The forecast for exports could be lowered as much as 400,000 bales, falling to 15.8 million bales.
Any reduction in exports will only add to the carryover level of U.S. cotton. Domestic consumption is expected to fall as much as 200,000 bales from the current USDA forecast, although a reduction of that amount is not expected to be in next Monday's report.
This, coupled with the lower export number could raise U.S. carryover as much as 600,000 bales.
The market is likely tightly tied in a trading range that will not top 56-57 cents until the May or July contract months. Yet, long term numbers point to higher prices.
Nevertheless, the fundamentals that support higher prices relate to the 2007-08 marketing year.
Thus, as stated last week the attractiveness of owing July 2007 call options on any market sell off that takes March below 53 cents and closer to 52 cents.
marketing@alchempro.com
