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July & Dec NY cotton futures post gains this week
Apr '14
NY futures rebounded this week, as July gained 205 points to close at 92.34 cents, while December moved up 110 points to close at 81.94 cents.
Trade short covering tied to mill fixations and the liquidation of additional basis-long positions generated enough buying power this week to avert a trend reversal and to lift the July contract back above its 5-month uptrend line. The bulls were lucky that July has taken over as the lead month after the index roll, since the May chart doesn’t look nearly as healthy.
The liquidation of the May contract has advanced quite rapidly this week, as only 18’607 lots remained open before today’s session, while July open interest has shot up to 100’756 contracts. Overall open interest in current crop futures remains relatively high at 119’363 contracts or 11.94 million bales, as the majority of traders have simply rolled their shorts forward to July instead of opting out. 
Mills, who as of last Thursday still had 3.74 million bales to fix, compared to 2.44 million a year ago, are still hoping for a big break in the market to help them get out of trouble. The same goes for the many basis-long positions the trade still carries, which have taken quite a hit lately as the basis for most origins has weakened by about 300-400 points since January. Unfortunately we don’t see an easy way out from this basis trap, since the unwinding of these positions, i.e. selling physical while simultaneously buying back futures, only seems to exacerbate the problem.  
US export sales were surprisingly strong last week considering how little remains for sale, as 230’800 running bales of Upland and Pima cotton were sold for both marketing years, split between 95’000 bales for shipment until July and 135’800 bales for August onwards. 
We assume that around two-thirds of the bales that have been sold for ‘next marketing’ year are being supplied from existing stocks for delivery during the August/October time frame. Shipments of 297’200 running bales were once again stellar, bringing total exports to 7.7 million statistical bales so far.
We estimate that no more than 1.3 million bales of US cotton remain available for sale at this point. Supply amounted to only 16.8 million statistical bales this season (3.9 beginning stocks + 12.9 million crop), of which 10.0 million have so far been committed for export and a further 3.6 million will be used up in the US by the end of July. 
But we also have to account for another 1.0 million bales of US mill use between August and October, plus a similar amount of exports during that time frame. Adding it all up, we believe that a total of 15.5 million bales will have to be supplied from existing inventories.

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