Fund managers continue to invest more money in the commodity markets. Open interest continues to increase to record levels. Most of these funds get into a market they feel is under valued buy into it and hold that position long term. There is new money coming in every day and it impossible to predict how much more can come into the market.
This created a variable that we cannot account for accurately. It is just a matter of monitoring consistently and knowing where they stand at all times. We have to assume these funds will continue to own bigger percentages of the open interest and will not go away.
We have seen the corn and soybean prices go through the roof this last year and thus take acres away from cotton. Corn as an alternative fuel is all the talk, the US policy on this issue will not change in the near future. If the price disparity stays at these levels cotton will loose even more acres in 2008/09. There has always been a strong correlation between these commodities.
Growers insist the price of cotton has to get to 75 cts/lb to justify planting it versus $900 beans. The recent correction in those two commodities the last 2 weeks led the way to the strong cotton correction we are seeing today. It all comes down to timing. At what point will the market start trading in the 08/09 fundamental situation. We need cotton to rally significantly to justify planting it next year.
The northern hemisphere crop will start to be plantedin February, so we have to assume prices need to rally before then. My guess is that cotton will trade in the 60's over the next few months but could get explosive towards the end of the year. We will continue to see a very volatile situation. Anyway you look at it today, you have to assume the market could trade significantly higher and the down side is limited.
Under pressure of a weak close yesterday, technical selling drove NYF sharply lower to almost limit down Friday session. December contract closed at a new three week low, and pictured a retracement of nearly 6 cents on the week.
The bears are sensing further weakness with the 9 day moving average continuing to trend lower to settle at 6628 on the day. The RSI has again corrected significantly from 55 to 47, which is still in the neutral range.
marketing@alchempro.com
