Global cotton production estimates reduced by 1.6 million bales

21 Apr '08

3 min read

Bottom line, even after considering an economic slowdown, Cotlook reduced their estimate of the world carryover by 1.575 million bales. Others have estimated that China's cotton plantings in some areas will only be about 85 percent of a year ago. However, increased production on a year to year basis is expected in India and Pakistan.

A very decent three-cent shelf of fundamental support in the form of both fixations and fresh export off take is believed to exist beginning around Fridays lows. (May 70-67 and July 74-71).

However, from a technical standpoint, the spiked-blow off reversals so ominously evident on the monthly, weekly and daily charts should clearly keep prices on the defensive this week. July narrowly escaped an outside range reversal on the weekly charts. Bears will gain additional momentum if May closes below 7021, July 7367 and Dec 8144.

As mentioned last week, seasonal patterns also fail to support the bull argument at least for the next couple of weeks. In fact the July cotton has declined 13 of the last 15 years in the three week period between the middle of April to the end of the first week of May.

All that being said, the funds are still basically bullish and with signs of bottoming action, will be right back in on the long side. Bears and mills without coverage should not become too complacent

December's chart shows independent technical support but even there the market has a heavy look. However, there is a seasonal tendency for the next two months for December to gain on the July contract. One has to be impressed with managed money speculators committing significant funds to Dec $1.50 calls last week.

Swiss Financial Services

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