Cotton market to be dominated by soybean & wheat markets
16 Oct '07
4 min read
Cotton futures held their weekly gains despite the seemingly bearish USDA October supply demand report issued Friday morning. December closed up 65 points for the week. Yet, the more impressive action was that the March, May and July contracts all closed more than 100 points higher on the week.
While the December 2008 contract also settled higher, the current crop March, May and July futures did gain ground on the new crop December. Without question, I remain very bullish the new crop December 2008 contract. However, we are most likely no more than six weeks to month away from the current crop contracts beginning a slow, but gradual move higher.
The December contract seems intent holding the 62 cent mark. Nevertheless, the 66 cent level appears to have just as much price resistance as the 62 cent level has support. The potential for a drop below 60 cents has all but dissipated. Too, should the market fall below that level, such would be extremely short lived.
December will likely spend the majority of its trading time near the 64 cent level. Thus, mills should demonstrate considerable interest on any price tick below 64 cents. Likewise, growers have the ability to hold cotton in the loan with the expectation that the back months will offer a premium.
However, most mills have demonstrated a firm attitude of avoiding new purchases or even price fixations with December above 62 cents. Their time to make purchases at current or lower prices is, however, also dissipating. As suggested, there will be little to no harvest pressure on prices in six weeks.
Generally, the October supply demand report offered few surprises. The initial interpretation was that the report was bearish, but daily trading showed otherwise, although major changes were made in both the China and U.S. numbers.
USDA increased its estimate of the U.S. crop 350,000 bales, up to 18.15 million bales. Exports were unchanged at 16.7 million as was domestic consumption at 4.6 million. However, beginning stocks were lowered 200,000 bales, down to 9.5 million bales. Ending stocks were increased 200,000 bales to 6.4 million.
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