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NY cotton futures shows mixed performance this week
23
Nov '13
The Dec/March spread remained at the center of attention, with the difference widening dramatically to nearly 400 points today, after the two months had traded at par just a little over a week ago. We believe that December has now become very attractive to potential takers, be it as an outright purchase at 75 cents or on a spread at full carry. 
 
Considering the stiff basis some prominent merchants have been willing to pay for cash cotton this week, we have to assume that a large portion of the current Certified Stock (264’000 bales including bales under review) is going to disappear over the coming weeks. 
 
 There was a flurry of excitement on Wednesday after the market shot up 200 points based on two news items out of China, with March trading as high as 79.45 cents. First it was reported that China’s CNCRC expected the crop to be at just 6.68 million tons or 30.7 million statistical bales, quite a bit lower than the current USDA estimate of 32.5 million bales. 
 
The second story referred to rumors about the Reserve delaying auction sales by several weeks. This caught some local traders with short positions by surprise and led to a sharp rally in the Zhengzhou futures market, which spilled over to the NY futures market during the overnight session.
 
ZCE futures are currently in a steep inversion, with the January contract trading about 8 cents/lb above the May contract. Prices on the CNCE are showing a similar inversion. However, we need to remember that this is an artificial squeeze since China has more than enough cotton with its massive stockpile and in this context it is insignificant that China’s crop may be slightly lower than expected this season. 
 
 What we are currently seeing in many markets around the globe is a nearby shortage of cash cotton, as we are still in the process of refilling a nearly empty supply pipeline. Some traders may have overcommitted for nearby shipments and are finding it difficult to find coverage. 
 
The US is no exception, as merchants have been scrambling to get their hands on cotton, since the crop has been later than usual and logistics are only able to handle so much, with load out dates at warehouses already backed up until January in many cases. Meanwhile, US export commitments keep rising at a torrid pace, as around 1.8 million bales have been sold over the last six weeks! 
 
US export sales for the week ending November 14 amounted to a stellar 331’300 running bales net, with Turkey (117’600 bales) and China (68’100 bales) leading a group of 22 different markets. 
 
 

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