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Cotton trades steadily
26
Mar '09
Cotton finished the day fully steady, albeit on light volume and ignoring an extremely weak grain complex and a stock market that faded badly from it's early impressive gains. Stocks rallied sharply from the opening following encouraging reports that US home sales climb at fastest pace in 10 months and that US Durable Goods Orders unexpectedly Jumped 3.4%.

As of this writing, the Dow Industrials had fallen over 250 points from its high. Cotton futures closed 27 to 39 points higher on volume of less than 7,000 contracts. Option volume was estimated at only 2,100 calls and 1,000 puts. There was no fresh news specific to cotton that I am aware of. Cotton tried briefly to trade lower following yesterdays dip sympathetically with outside commodity markets.

However,it did not take long for sellers to lose interest and some buying to show up in both futures and options. Very possibly, it could have been a smattering of trade buying that could have been related to fresh sales. In any event, in was at least enough to encourage locals to cover shorts. Cotton bounced nearly a cent off the lows but buyers were hesitant and rightfully so, to test the 4500 area.

Earlier this week, significant commercial selling related to the futures/AWP spread, hit every bid over 4500. The AWP, the price at which cotton can been redeemed from the loan, is projected to jump another full cent tomorrow. This would of course, drop the LDP available to eligible producers a like amount. The recent strength has displaced the two US growths from their place in Cotlook's A Index.

Previously they have been the two cheapest in the world which lead to sales of over 1.5 million bales over the last month. However, business has noticeably slowed the last few days. Commission house traders are looking for export sales in the morning to be between 150,000 and 200,000. However, it has been a long time since the cotton market has paid any attention to export sales.

Open interest in cotton futures jumped 1,752 Tuesday. This brought the total increase in just a little over two weeks to over 20,000 contracts. There is strong evidence that the big funds are becoming interested in our market once again. The influx of fresh capital into managed money last month was the most since February last year just before the market exploded to 92 cents plus another 12 cents synthetically in options. My guess and that is all it is, is that the sharp rise in open interest is due to speculative fund activity.

Swiss Financial Services

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