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NY futures find support this week
09
May '08
NY futures found support this week, with July gaining 160 points to close at 70.85 cents, while December advanced 190 points to close at 79.35cents.

It was another very dull week, with trading volume over the last five sessions combined amounting to just 63'693 futures, which is about 20'000 contracts less than what was traded in a single day on March 5.

Even though there was some news for both bulls and bears to trade off this week, neither camp was able to generate any momentum. Earlier this week West Texas was blessed with a surprise "million bale rain", which ordinarily is reason enough to push the market at least a cent or two lower.

But as we have stated last week, the trade has currently not much appetite to increase its already sizeable net short position, knowing fully well that by going short at 70 cents the odds are not stacked in its favor. Hedge funds on the other hand don't care as much about these rains in Texas and are instead focusing on the commodity outlook in general, which improved markedly over the last few days after a threatening correction last week.

Take cotton for example, where the cost of everything from operating machinery, pumping water, fertilizers, gins, transportation, warehousing and ocean freight is linked to the price of crude oil. Even with the great yields many growers have enjoyed over the last few years, the average cost of production has gone up considerably and this floor keeps rising steadily.

The sharp price increase for cotton seed has helped to offset some of this higher production cost, but with the price of crude oil now double what it was a year ago there seems to be a limit as to how low the price of cotton can go.

A lot of mills are obviously finding the current price near 70 cents attractive enough to book a sizeable amount of cotton. For a second week in a row, US export sales were very strong at 681'900 running bales of Upland and Pima combined. This brings the two-week total to over 1.4 mio running bales and is a strong indication that the current price level is finding widespread acceptance.


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