Old Man Winter is apparently still not quite ready to quit, as another cold front is dipping down from Canada this weekend, bringing more rain to the Memphis territory, with low temperatures dropping into the high 40s. Fortunately the weather is finally expected to improve once this next front has passed.

While there is still time to get the seeds in the ground without losing yield potential, the US crop will be quite a bit later than normal and therefore becomes susceptible to adverse weather conditions in the fall. This means that traders and mills will rely more than usual on current crop supplies for their late summer shipments. The problem is that there is not really that much cotton available anymore in the US, after strong export sales have reduced inventories considerably in recent months.

Here is the math! We started with supplies of 20.65 million statistical bales, of which 13.1 million have so far been sold for export and 3.4 million go to domestic mills. This leaves theoretically 4.15 million bales for sale, but at least 1.0 million have to be reserved for domestic mill use from August to October/early November and a similar amount is needed for exports from August onwards.

Export commitment currently amount to around 1.6 million statistical bales for 2013/14 and we estimate that at least two-thirds of these bales are for shipment August/October. Therefore, after backing out these reserves, we are left with just around 2.2 million bales still available for sale, of which 0.5 million are in the certified stock!

Considering the low amount of unsold stocks in the US, and in most origins outside China for that matter, it is surprising that open interest in July futures keeps getting bigger. After all there are just a little more than six weeks left before July enters its notice period and there were still 118’886 contacts open as of this morning, 7’459 more than a week ago.

Maybe the shorts are hoping for the inversion to fade away or for the selling basis on their unsold physical positions to improve, but by waiting and increasing the position they are playing a dangerous game.

Tomorrow’s USDA supply/demand report, in which the government provides its first detailed look at the 2013/14-season, will give traders something to chew on and determine the market’s next move. Analysts seem to agree that world production will likely exceed mill use for a fourth season in a row. Although world production is expected to decline to around 114-115 million bales, mainly due to reductions in China and the US, it is probably not enough to drop to the level of consumption, which should improve slightly to around 109-110 million bales.