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Greek offers displaced Memphis-Eastern cotton
Apr '09
With the week coming to an end it certainly seemed the bulls had the shorts on the run until over head selling became impenetrable and the near panic buying subsided. Prices collapsed in the last 20 minutes.

Most dramatic however, was the dramatic narrowing of the spread between May and July.With May options expiring, those short the May calls were having to scramble to cover. The Goldman-Sachs Index fund rolls were going the other way and must have thought they had died and gone to heaven.

Even with the late session nosedive, cotton futures still had a second consecutive higher weekly close. Volume was impressive the second half of the week but open interest has been dropping. Option expiration will most likely bring an even sharper drop this week.

Thursday was a big day for reports with option expiration, export sales, April Supply/Demand and the anticipated transportation adjustment for the AWP.

Exports were better than anticipated with China, Pakistan and India the prominent buyers. Domestic internal prices in both China and India have been soaring lately despite holding abundant government owned stocks. Pakistan has continued to import both high grades and barky West Texas cotton due to tight domestic supply.

However, with the two US growths being slowly scooted away from any competitive advantage in Cotlook's A Index of the world's cheapest growth, it is unlikely that the brisk pace of the last month will continue. At the bottom of the market, both Texas and Memphis growths were the cheapest. Last week Greek offers knocked Memphis out of the Index while the West African styles moved Texas to number four.

The April Supply/Demand Report is more often than not a yawner. However, the US numbers held a mildly pleasant surprise. An increase in projected exports more than offset another cut in domestic usage to the lowest offtake in our lifetime. US ending stocks were reduced 600,000 bales. However, the global picture was not so rosy. As consumption dropped much sharper than production leading to an 880.000 hike in world ending stocks.

Thanks to the USDA's reduction of the transportation charges in the AWP by 182 points, it jumped the AWP a total 384 points to 38.37 up for the week. Of course, the LDP for producers forgoing the loan dropped a like amount. This jump in the AWP will theoretically raise the level of hedging. However, with over four and a quarter million bales redeemed the last three weeks and more to come on next week's report, one must wonder how much demand even remains for loan equities for now.

Technically, the 20 day stochastics are threatening a sell signal from overbought territory. Without significant assistance from outside markets, including the dollar, cotton prices seem likely to now sell off a bit and consolidate before launching another upside assault.

Retracement support should be evident for the May contract around 47 cents with much more around 46 cents. Moving average support would be found closer to 45 cents. However, with May going into delivery in 9 sessions and now holding the biggest open interest. Both specs and commercials interest has turned to the July contract. Sell stops will likely be found in July below 4729 with trend line with moving average support in the July contract anticipated between 4640 and 4580.

The Lubbock territory had widespread, measurable precip Saturday night mostly between .25 and .85 with the exception of the southwestern portion that includes Seminole and Denver City where 1.5 to 2.2 inches were recorded.

Swiss Financial Services

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