New York futures continued a consolidation phase this week, attempting to stabilize from losses suffered two weeks ago. December did climb above 59 cents for a brief period, but generally worked only a two cent range. Deteriorating U.S. crop prospects, earlier than normal Chinese harvest, and excellent export demand for U.S. growths highlighted the market during August.
The path of least resistance appears higher, but the increasing availability of local cotton to Chinese mills may cause Chinese buying to slow. China's early harvest stands to push local prices lower.
Following the price collapse of two weeks ago, U.S. export sales for the week ending 8/16/07 totaled 400,500 RB with upland sales totaling 397,600 RB and Pima totaling 3,900 RB. This very large weekly sale level can be attributed to either the underlying demand below 62 cents basis, December futures, and/or that mills feel the severity of the price collapse was overdone. Either way, the weekly sales suggest an increase in demand.
Normally, this could only be read as a bullish signal for the market. Yet, the earlier than normal Chinese harvest, coupled with the rapid delivery of local new crop cotton to Chinese mills, may keep prices under pressure until the normal harvest season price pressure of the remainder of the Northern Hemisphere crop puts a cap on prices.
This downward prices pressure, if it materializes, would keep a lid on domestic Chinese prices, making it more favorable for Chinese mills to delay cotton imports. Additionally, while the Chinese crop has been hit with more that its share of weather problems this season, it is far too early to suggest their crop will be weather reduced.
marketing@alchempro.com
