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Cotton market set new record on 21Feb
22
Feb '08
After the strong close yesterday, the cotton market finally separated itself from grains and was very firm overnight. It is worth noting that FND for cotton is on Monday the 25th in NY while the grains do not expire until Friday the 29th in Chicago. This is the main reason the H'08 rallied today as it appears a stopper for the cert stock has materialized and willing to take delivery.

We found good scale up selling at 80 cents based Z'08 and 74 cents on K'08 overnight, but after we broke through the contract highs midday at 80.61 and 74.64, the market ran into good buy stops with very little upside selling. Volume was very strong today at 74,000 futures and 43,000 options as the spreads came in significantly and will force cotton to change hands on Friday.

We are expecting a descent export sales report tomorrow between 250k and 350k in new sales. However, it is obvious that new business will be very difficult to contract as we roll to the K'08 cover month trading at new contract highs.

Despite hand to mouth demand and growing ending stocks in the U.S. the trade are in a difficult position as they are now the minority holder of open interest and with such a strong technical picture are not allowed to sell aggressively for fear of rising margin calls.

The majority of U.S. cotton is still in the loan and even though this market would serve as a redemption rally, with such slow demand there is no urgency to redeem cotton. This is another factor which is allowing the market to find very little upside resistance.

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