Cotton opened mixed but after failing to extend gains early, the market fell sharply following weak results in the stock market as well as other commodities. The export sales report was within expectations but the 200K new sales were not able to push the market higher as we continue to be range bound nearby.
The low tested the bottom of the range and we will have to see the follow through tomorrow after all the profit taking after the month end close yesterday. Volume was above average with 31,000 futures and 8,000 options as the market was quiet and spent most of the session spread trading.
Turkey, China and Indonesia were the big buyers last week as we continue to see some hand to mouth buying on dips in NY. We should see consistent business with Z'07 in the low 60's especially with such a large premium from Z'07 to H'08 near 450 pts.
This has many mills who need cotton nearby unwilling to wait for lower levels in NY and forced to buy at these prices to fill 4th quarter needs. First quarter shipments will have more flexibility with new crop in a better position to cover requirements.
This may be the last significant business for U.S. cotton based Z'07 as the first quarter will be covered by cheaper foreign growths.
Technically, the chart is flagging, but we did break through the recent lows this morning and extended the range near 63 cents. The market however seems to be locked into spreading from Dec to March and will unlikelybreak out of this narrow trading range until after December expires.
With a record high open interest, it will be interesting to see how far specs are willing to hold their long positions in cotton. The weakness in the stock market today may show that we are reaching a nearby top and could be ready for a speculative sell off as the dollar made a rebound today.
marketing@alchempro.com
