The December cotton futures contract has raced some 5-7 cents beyond the price its own fundamentals can support. Friday's sell off saw funds take end-of the-quarter profits. Further, it was likely to have been the beginning of a price correction that should take the market some three to five cents lower.
During the past three months cotton prices have received significant benefit from the outside markets, including the grains, oilseeds and crude oil complex. Additionally, the near collapse in the U.S. Dollar-making U.S. cotton cheaper in other currencies-grows more pronounced by the day.
Thus, the bullishness cotton has experienced the past three months has been associated with the overall commodity complex. However, look for cotton prices to weaken as exports have dried up and harvesting is gaining momentum around the world.
Export sales continue under pressure from the recent price spike. Mills have generally stepped aside in anticipation of a price break going into harvest. Current purchases are being made almost entirely to meet short term needs. Net sales of cotton for export during the week ending 9/20/07 were 140,300 RB and were comprised of 133,500 RB of Upland and 6,800 RB of Pima.
The primary buyers of Upland were Turkey (32,300 RB), Indonesia and Mexico. Note the absence of China a primary buyer on the week. Net sales to China were only 23,400 RB. Peru (3,500 RB); Japan and India were the primary buyers of Pima. Export shipments were 5% below the prior 4-week average and totaled 265,600 RB.
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