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Cotton fundamentals continue to be bearish, O.A. Cleveland
Mar '08
O.A. Cleveland reports that the daily 100 point trading range days are now common place for cotton futures. Additionally, 200 point plus range days are no longer unusual, to say nothing of limit up and/or limit down activity in the same day. That said, market volatility has seemingly cooled a bit, but will remain, from time to time, quite volatile. The nearby May contract has settled in the range of 72 cents, but is vulnerable to a slip to the 67-68 cent range. However, I am of the opinion that the 70-72 cent level will hold the bottom for both the May and the July.

Cotton fundamentals continue to be bearish for the old crop contract months and bullish for the new crops months. The current weak spot basis offers reflect the very bearish short term conditions of excessive U.S. and world ending stocks. The bearishness is further entrenched as certificated stocks, both certificated and those awaiting review, are in excess of 900,000 bales with prospects of climbing to 1.25 million.

Yet, fundamentals for the 2008-09 crop are bullish as world ending stocks could fall as much as 8.0 million bales and U.S. ending stocks could fall to between 3.5 and 4.0 million bales, down for an expected 9.8 to 10.0 million bales in the U.S. as of August 1, 2008.

It is the bridge between old crop prices and new crop prices that the market is attempting to locate. That is, how does the market get from the current 72 cents, basis May to the near 85, cents, basis December, a 13 cent difference. While the old crop is fundamentally very bearish and the new crop is bullish (notice the distinction between bearish and bullish), there are bullish factors in the old crop market and some potentially bearish factors facing the new crop December contract.

The weekly call sales report indicates that May and July call sales (mill price fixations or buying of futures) were 27,496 and call purchases (merchant fixations for growers or selling of futures) for the same two month period 3,819. Thus, required old crop buying far exceeds required old crop selling.

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