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Bearish market fails to lure high inventory purchases
25
Apr '08
Today is the first notice day for May08 contract, and the total notices posted were 839. Major issuers were Dunavant house account with 474 notices and JP Morgan customer account with 191. Major stopper was Newedge customer account with 704 notices and the balance scattered among different parties.

With still more than 3,600 contracts in K'08 open interest, more notices are expected to come. Trading today was choppy in thin volume as we looked at outside markets for direction. The friendly overnight ICE open didn't hold well as the overall commodities weakness spilled over to cotton.

As dollar strengthened more than 800 points, prices in crude oil slipped same as in grains. Reinforced by the lower re-open of the Chicago market, majority of today's session was trading back and forth around the 100 point lower level. Prices eventually sank under pressure from outside markets as well as bearish options to settle at near session low.

This morning's U.S. export report (chart on page 2 in attached PDF) proved that overseas mills are in no rush to purchase inventory despite price drops in the NY futures market. Due to the tight profit margin, most mills are only buying hand to mouth. Since there's plenty cotton around, they can afford to play the waiting game.

Also, with selling basis switched from K'08 to N'08, NYF needs to drop another 3 cents to make U.S. cotton competitive in the world market. New sales were slightly improved from 148,800 running bales upland and pima combined last week to 176,900.

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