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Cotton moves in narrow range on back of light volumes
May '08
Cotton spent another uneventful day trapped in a narrow trading range on light volume. Cotton and the grains are getting some support from the move in oil prices, but are finding heavy resistance on the upside.

When oil runs out of steam, this could have a very negative effect on cotton. The options seem to have N'08 stuck between 70/75 cents and the Z'08 gets heavy selling pressure above 80 cents. Volume was back to the light side with only 18,000 futures and 9,000 options as cotton looks very passive with little commitment from the bulls or the bears.

Export sales and shipments are expected to be below average considering the record high sales in the previous two weeks. Space is limited at the port and equipment is hard to find. The rising cost of oil has been hitting the transportation industry and forcing fuel surcharges to our export destinations which further keeps U.S. cotton from being competitive.

Sales and inquiries have been quiet this week and expect only some light hand to mouth buying unless we can get N'08 under 70 cents. This would be very unlikely until after options expire on June 13th so we see the short term trading range to hold up well as we continue to trade in a narrow sideways range between 70/72.

Growing cert stocks along with stagnant open interest and lack of demand equal a quiet cotton market. Demand is still hand to mouth and the board is paying merchants to hold cotton with spreads from N'08 to H'09 as wide as 14 cents! That equates to 175 points a month and is the result of record cert stocks approaching 1.5 million bales and growing.

Volatility has also taken a hit and with July FND approaching, we may see open interest also fall back below 250k. Cotton will most likely trade sideways until options expire and then we may test the lows. Cotton can find good demand with the spot month under 70 cents, but the upside is limited as well.

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