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ICE Cotton gains over 400 pts this week
Mar '14
ICE Cotton joined the commodities rally this week by gaining over 400 pts to settle at 91.27 c/lbs basis K4. After several weeks spent trading in a narrow range, following a better-than-expected USDA export report on Thursday, which seemed to increase market participants’ hopes for a cut to US 13/14 ending stocks in Monday’s WASDE report, the market surged higher on rising OI. 
With many commodities cheap both in outright terms and relative to equities, a wave of spec buying entered the markets, benefitting commodities with tight paper balance sheets such as cotton. Yet, in actuality, the cash market is stalling and China will - regardless of additional quota, be it 4:1 or processing – fail to chase the physical market higher from here. At current levels, demand will be rationed. 
Therefore, one way or another, US cotton will flow to the board, narrowing the N-Z invert, since no stopper will emerge above 86-87 cents. Unclear, of course, will be the tipping point – the level is required to attract cert stocks - and when this will occur - before, or after, N4 FND.
US 2014 GDP estimates are being revised lower, with uncertainty as to whether the slowdown seen thus far this year was due to weather or something more worrying. The February jobs report beat expectations, while the unemployment rate climbed slightly. Tapering remains on track for now. 
The UK and EU central banks kept rates on hold, while Australia’s central bank softened its rhetoric regarding the AUD. The market seemed to move past conflict in Ukraine this week, and grains seem to have priced in more export problems than have actually occurred. China stuck to its pledge of 7.5% GDP growth at the annual NPC meeting, while other rhetoric potentially softened this to around 7.2%. Overall, risk is still on.


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