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December Cotton Futures closes towards upside this week
Aug '14
December closed to the upside this week, ending a long string of negative weeks. Settlement was at 64.21, up a whopping 94 points.

If you’re a bull or a producer, you’ll take any upside that comes. This week’s upside follows last Friday’s buying so we may finally be seeing a reversal.

So why the change? Well, it comes down to timing. The world is going to be flush with cotton with this new crop but we don’t know exactly when it will be available.

With prices this low, U.S. producers may use the U.S. loan program, which allows them to wait and sell at either a much higher price or much lower price and a better POP payment. Because of this, free cotton is going to be hard to come by between now and December.

Add the Chinese mills need to use up their quota by the end of the year and we may see very tight supplies, which should be reflected in both NY and the basis. With the Brazilian crop a mixed bag of grades, staple, and mic, many mills will be trying to get their hands on the little available U.S. crop. So far the average south Texas crop seems to be short staple again, only making matters worse. Mills, and therefor merchants, are going to have to pay up in order to pry cotton out of producer hands.

However, now that it seems that most merchants have awoken to the potential for a tight supply through the rest of 2014 (this week we saw some offers pulled or revised upwards), the market may get dangerous on Z14. We’ve seen it in the past.


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