The question remains as to whether the FED's lowering the discount rate 50 basis points will be sufficient to stifle the extreme volatility that spread to all the markets. Yet, the fact remains that banks and savings and loans (regulated by FDIC and FSLIC) are no longer the only group holding significant loans.
Thus, the market knows little about the location of risky investments, the bulk of which are likely outside the reach of regulators control and inspection. Thus, volatility will remain.
The week's action sent the market down near 58 cents; the point that I had earlier stated would be the low point for the remainder of the season. Nevertheless, the world cotton supply remains very adequate. A further deterioration of the U.S. crop, however, will likely pull December back above 60 cents and near the 62-63 cent level.
The exports sales report demonstrated the demand for cotton with the market at 62 cents and below. Net sales for the week ending 8-9-07 totaled 360,800 RB, with Upland totaling 355,300 RB and Pima at 5,500 RB. China, Mexico, Turkey and Indonesia were the primary buyers.
Export shipments were also strong at 352,500 RB, totaling 339,700 Upland RB and Pima at 12,800 RB. This week's price decline to near 57 cents should open the way for significant sales for the next two reporting periods.
The volume of cotton available on the world market, coupled with the likelihood that the 2007 Chinese crop will be available for domestic textile use much earlier than normal, and volatility associated with the U.S. commercial markets, sets December cotton futures on a path to dip as low as 55 cents.
With technicals pointing to lower prices, and Chinese demand has yet to reach a 50% share of U.S. exports, the easy path will be lower. However, such a continued sell off is likely to be short lived and December will attempt to reclaim the 60 cent level.
For those that purchased the December put and sold the calls either on a one-to-one basis or a one-to-two basis. The time has come to sell the puts, taking the profits. Additionally, it is also time to repurchase the call option positions, taking additional profits.
marketing@alchempro.com
