China, Turkey, Indonesia, Pakistan and Mexico will continue as the principal buyers of U.S. Upland cotton. However, it is noted that Chinese mills exit the market must quicker that other mills as prices move to the middle and upper end of the trading range. That strategy has proven to be wise for the Chinese. However, there is a preponderance of evidence that suggests they feel that prices will slip near or below 60 cents. However, that has not been the case.
There appears to be too much demand at 63 cents to allow March futures to slip below 62 cents. The 62-63 cent level, basis the spot futures month, has held firm for months-with the notable expectation of a couple of days when the December contract went to first notice day.
Even with world stocks at 55 million bales, it is doubtful the March contract will see anything below 63 cents except for a very fleeting moment. The same can also be said for the May and July contracts. That is, textile mills are on the verge of seeing 63 cent cotton, basis New York, disappear. That said, market volatility will likely force the March contract back to 63 cents, but those trips will now be very short lived.
In support of this, call sales are almost ten to one ahead of call purchases for the March, May and July contracts (40,000 call sales to 4,500 call purchases). That imbalance will weight heavy on mill purchasing decisions in the mid January through February time frame.
U.S. domestic textile mills consumed cotton at seasonally adjusted annual rate of 4.8 million bales during November. October usage was revised to 4.7 million bales. Now four months into the 2007-08 marketing year, U.S. mills have used cotton at the annualized rate of 4.9 million bales, 300,000 bales ahead of the USDA forecast of 4.6 million bales.
Historically, the holiday season has been a prime time for export sales. Likely a drop below 65 cents in the March contract will uncover good sales. The market will continue volatile while following the grain and oilseed complex, but a very firm base is being built for higher prices.
marketing@alchempro.com
