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NY Cotton Futures display mixed trends this week
Jun '14
The July/Dec spread was at the center of the market’s attention this week, as the inversion traded in volatile fashion between 800 and 1400 points. It was primarily the spot month that caused the commotion, as the larger than expected open interest prompted some shorts to pay up in order to square their positions earlier in the week.
When traders returned from the weekend, they were surprised to see that open interest still amounted to nearly 45’000 contracts in July. We believe that the relatively large certified stock of over 400’000 bales has encouraged many shorts to stay in the game longer than they otherwise would have. Once traders realized the danger of such a large open position, many of them began to cover, which lifted July above 91 cents by Wednesday. 
Even though July let off some steam today, the situation is far from being resolved. As of this morning, open interest was still at 26’051 contracts, the most at this date since 2006. By comparison, last year’s open interest was already down to 12’765 lots and two years ago it amounted to 17’222 contracts on June 19. Furthermore, in both of those years the available supply of tenderable grades was considerably larger than in the current season. We don’t know how this poker game will ultimately play out, but we are likely to see another two volatile sessions leading up to First Notice Day on June 24. 
December continued to be well supported near 77 cents. After dropping to a closing low of 76.32 on Tuesday, the market was once again able to quickly reclaim the 7700 level in the last two sessions. December is getting support from a tight supply scenario that will last well into the 4th quarter. As a result cash prices remain relatively firm, with the current A-index at 93.70 cents and the forward A-index at 84.45 cents. When we apply the traditional 6-8 cents discount to the A-index, December futures seem to be more or less at ‘fair value’ near 77 cents.
US export sales continued to surprise positively, as a total of 258’700 running bales of Upland and Pima were sold last week, whereof 155’200 running bales were for June/July shipment. Indonesia (91’700 bales) and Vietnam (66’100 bales) were the most active buyers for nearby shipment and this seems to indicate that mills in the Far East still have a lot of holes to fill until new crop.
Shipments slowed considerably at 132’000 running bales, but are still on pace to make the current USDA estimate. Total commitments for the current season now amount to 11.0 million statistical bales, of which 9.6 million bales have already been exported. 

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