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Volatility in cotton market seems to be on decline
28
Jun '08
Once upon a time, long ago, cotton marketing was the same year after year. As government controls began to come off in the late 1960's and early 1970's there were only minor changes, as one could stay in New York and peg the market for the full year.

By 1977, if one wanted to get an understanding of the coming year's cotton market they had to look at commodity price ratios, take a trip to Memphis, talk via telephone one or two Texas cotton merchants, nothing else. There was almost no mention of demand-year after year. Then by the late 1980's, with globalization in its infancy, and the demand side of the price equation becoming important, both commodity price ratios and technicals (charts and graphs) drew additional attention.

Globalization was the key word of the 1990's as the U.S. cotton industry came to realize that world events, both political and economic, had a direct influence on the cotton market. With globalization just being understood, the 2000's gave the market a full shot of billion dollar fund managers with pension funds and individual state retirement funds being sunk in to commodity trading, with cotton getting its fare share. These managers call it "investing." Whoever heard of the futures contract referred to as an investment? Now, there are billions "invested" in cotton speculation, as well as all other commodity futures markets.

The crux of all this: Not only is each year different, today's cotton market is different from the prior day's market. Every morning brings a new set of fundamentals that impact the market. Stability one day is followed by a limit move the next.

Once volatility seems to decline, it skyrockets the next; day after each day is a new beginning. Therefore, marketing is more important than ever before, simply because of the price volatility the seen almost daily. Fortunately for growers, as volatile as the market is today, it is in a "resting" period waiting for the blow off that will come later in 2008 or in 2009 as the world's inventory of cotton declines and more and more land area is devoted feed crops, food crops and oilseeds.

On Monday, June 30, USDA will release its June Plantings Report. In March growers indicated their intentions to plant about 9.5 million acres. However, actual plantings have fallen possibly as low as 8.4 million acres. Expect the range to be between 8.4 and 9.0 million acres, with a bias to the low side. Watch for any "clarification" from USDA in the report.

Since the report is "officially" a planted acreage report, any plantings that have already been abandoned will still be counted in the report. Thus, the guessing game is already in process with respect to how much acreage has already been abandoned. Is it 500,000 acres or is it 1.5 million acres? Will the crop be 12.0 million bales or 12.5 million?

U.S. export sales for the ending June 19, 2008 totaled only 29,000 RB, a marketing year low. Upland sales were only 19,100 RB. Pima sales were 9,900 RB. Indonesia (9,200 RB); Vietnam and Thailand were the primary buyers of Upland. United Arab Emirates (3,200 RB); Japan and India were the primary buyers of Pima. It is evident from the last two weekly export reports that the market has left demand behind.

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