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Cotton prices drop by 15% this week
11
Oct '08
Cotton traded lower based on the international stock market meltdown which started in Asia and spread through Europe and even affected the U.S. on the open until we rebounded.

Volume was average today with 16,000 futures and 21,000 options as traders keep taking down side protection in this uncertain environment. Cotton fell 15% this week and we have now reached a point where the physical market cannot converge with the future price levels. We are at a 17 month low as all commodities are struggling and we may have further down side testing to go.

Take a look at the sharp increase in ending stocks for cotton on page 2 in attached PDF and that also played a big part in today's limit down move. Commitment of traders report today with summary on page 3 in attached PDF also shows how the liquidation of index longs as well as non commercial longs is starting to pick up as open interest keeps falling.

There is good fundamental demand at these levels as we continue to make good sales, but the technical free fall of equity markets worldwide are preventing any support to be found nearby.

We broke a long term support line today near 50 cents that has been in place since we hit 27 cents back in 2002. This along with the continued fear and speculation around the world makes us feel the down side may have further to go.

The U.S. economic picture is still bearish and uncertain even with the bailout plan in effect. The weak economic conditions are hitting Asia as well as Europe and there does not appear to be a bottom in sight. The fear of economic slowdown is worldwide and the commodity prices are affected accordingly. We're trading in the 50's range and demand is strong for nearby shipment.

However, the decreasing world demand is keeping the buying hand to mouth. It looks very bearish technically and the MACD crossed downwards not long ago. Though it's not possible to pick a bottom yet, the deeper the drop, the sharper the bounce will be.

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