NY cotton futures had a mixed performance this week
22 Dec '06
2 min read
The market continues to follow a predictable path, as the AWP ratchets higher week after week and NY futures follow in its footsteps.
For the coming week, the AWP will increase by 78 points, from 45.05 to 45.83 cents, which puts the spread between the AWP and March futures at just 954 points as of today's close. This is certainly not enough to lure a lot of cotton out of the government loan.
As of Tuesday, December 19, only 3.6 mio bales have been freed from the loan so far, which is up about 0.35 mio bales from the week before.
However, since US export sales amounted to 349'900 running bales last week, including 23'500 for next marketing year, the amount of unsold cotton outside the loan has not increased.
In fact, when we take all outstanding export commitments and two months of domestic mill use into account, there are hardly any 'free' bales left for sale.
Any additional supply will have to come from the loan, and that is not going to be cheap the way things look at the moment.
Our mill friends are somewhat puzzled and frustrated by the recent price development, since they cannot understand why prices are pushing higher with so much US cotton unsold.
Well, while it is true that a lot of US cotton is still looking for a final buyer, we need to understand that for all practical purposes every bale of loan cotton can be considered as sold.
Once a farmer puts his cotton in the loan, he in effect makes a sale to the US government at 52.00 cents, basis SLM 1.1/16, FOT. After that, there are only two ways in which that cotton can be bought back from the government.
marketing@alchempro.com
