Cotton merchants continue support on dips near 54 cents
06 Jan '07
3 min read
A principal dilemma for the U.S. merchant lies in the difficulty of obtaining cotton from the loan. The spread between the AWP and New York nearby futures is the mechanism that triggers the merchant's ability to obtain cotton from growers holding cotton the loan. While aiming at somewhat of a moving target, the spread needs to approach 1000 to 1100 points. Currently the spread has fallen below 825 points. Thus, it is not feasible for a merchant to take loan cotton and sell it in the export market.
While U.S. export sales are small, other growths are moving well in the world market. India especially has been very aggressive in selling its bumper crop. The U.S. can expect to be on the sidelines until more of the other grows begin to sell out-once again leaving the U.S. as the world's residual supper of cotton. Yet, the lifeblood of the U.S. cotton industry is the export market.
Thursday's dramatic price drop led some U.S. merchants to become somewhat more aggressive in their offers to Chinese mills. It is thought that sales were made, a bit of an improvement, but not in the volume needed to spur New York higher. The mill's success in playing a waiting game has been rewarded. But, will they get caught on the wrong end of Russian Roulette? New York will remain under pressure. Continue to use these dips between 54 and 55 cents to purchase out of the money July calls.
marketing@alchempro.com
