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NY futures trade sideways this week
13
Jun '09
NY futures traded sideways this week, with July dropping 58 points to close at 56.30 cents, while December gained 17 points to close at 61.26 cents.

The main feature this week was the widening of the July/Dec spread, which increased from 421 points last Thursday to 496 points as of today's close. The current spread should ensure that there will be a taker for this growing certified stock (383'645 bales and counting), despite the fact that New York futures remain several cents overpriced in comparison to the cash market.

Other than that the cotton market continued to pay close attention to what is happening in the outside markets. The dollar tried a comeback early in the week but has since started to weaken again. The current ratio of nearly 1-to-20 of cotton is quite stretched based on historical norms and suggests that cotton is too cheap. Taking other factors such as inflation and a weaker dollar into account, it may be more plausible that cotton is lagging behind than the other way around.

This week's USDA supply/demand report did not contain any major surprises, although it signaled a further tightening of world ending stocks. The biggest changes in the report included production decreases for the current season in India (-500'000 bales) and Brazil (-300'000 bales), while Pakistan's mill use was raised by 500'000 bales. Ending stocks were lowered by another 1.16 million bales at the end of this season to 61.16 million bales, while they are expected to drop to just 56.54 million bales in the 2009/10 season. This would be a noticeable change from the 61.0 to 63.0 million bales of stocks the world has gotten used to over the previous four marketing years.

Noteworthy in regards to the US statistics is that exports for the 2009/10 season were lowered to just 10.8 million bales, which would be the lowest export number in 9 years. When looked at in terms of world trade, only 1 out of every 3 bales is expected to come from the US in the coming season, which is the lowest ratio since the 2000/01 marketing year. In the current season the US needed to capture one out of every 2.23 bales sold in the export market, while last year the ratio was 1 out of every 2.83 bales.

Even though the US is expected to export 1.9 million bales less next season, ending stocks are still going to shrink by another million bales to just 5.6 million bales in 2009/10, which would be the lowest stock level in five years. Also, when we look at the export sales report that was released this morning, we notice that there will be at least a million bales carried over at the end of July, because commitments to date amount to 13.7 million statistical bales, while shipments are believed to reach 12.7 million bales.

Further, there are another 0.8 million bales that have so far been sold for August onward shipment. This means that as of today there are already 1.8 million bales on the books that count against the projected 10.8 million bales of exports in the 2009/10 season.

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