I am not the usual writer of this report, so it may not include the usual in depth criteria covered in the past. I want to outline a general overview of what the cotton market has done in recent months and try to guesstimate where it is headed.
There are 3 mayor factors influencing the market today. 1. The current and future supply demand situation, 2. The always increasing amount of investments coming into the commodity sector and 3. The market trends of other grain markets. The market has been very volatile the last 2 months because we have two scenarios influencing the market.
The short term scenario shows sufficient stocks world wide to get us to new crop. Our S/D numbers show ending stocks for 2006/07 at a stock to use ratio of 48%. For 2007/08 we have had a significant drop in acreage and we expect the carry out ratio to drop to 42%.
So far the crop is progressing relatively well and that number could be a little higher. Based on the expected drop in production, we see the market trading 10 cents higher than last year or between 60-67. The second scenario looks even further forward, out to the 2008/09 crop.
If we assume consumption will continue to increase at the current rate, and production remains similar to this year, the stock to use ratio could see another significant drop in stocks and prices at even higher levels. So based solely on S/D numbers the market may have gotten a little ahead of itself and traded above what the current numbers warrant.