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December cotton futures gain in strength
12
Sep '09
After spending the previous three weeks in a narrow 210-point range, the market managed to move higher, supported by outside markets and a weakening US dollar. The US stock market is trading at its highest level since last October, gold is flirting with the 1'000 dollar barrier and crude oil is on its way to challenge recent highs. Meanwhile, the US dollar index moved in the opposite direction, closing today at the lowest level in almost a year after losing over 2 percent this week alone.

There was not much news on the fundamental side, although we keep hearing some chatter in regards to crop prospects around the globe. There are mixed reports coming out of China and there is still a question mark behind India's yield potential after an erratic growing season of drought and deluge. Could we see a repeat of what happened last season, when high expectations for a bumper crop suddenly gave way to disappointing numbers? Also, Central Asian crops have experienced a weather related setback lately, with both yield and quality apparently being affected. The bottom line is that crops are not in the barn yet and that a weather premium is certainly well deserved for the next five or six weeks.

Last week the CFTC issued its first "Disaggregated Commitments of Traders" report, which offers a more detailed look at who owns what position. Of particular interest is the 'cleaned up' trade position, which is supposedly only reflecting positions connected to the physical trading of cotton. The updated version is showing the trade with a smaller net short position of just 7.66 million bales as of September 1, while the old format reported a 8.83 million bales net short for the same date.

The new CFTC format further separates all non-trade related positions into 4 categories."Swap Dealers" are by far the biggest with a net long position of 5.55 million bales, followed by "Managed Money" with a 1.83 million net long and "Other Reportables" with an insignificant 0.04 million bales net long position. The remaining net long is made up of "Non-Reportable" positions, which amount to 0.23 million bales.

In its supplemental report the CFTC still lists index fund positions at 7.5 million bales net long. The CFTC states that index fund related futures and options can be found in various categories, with swap dealers obviously accounting for the bulk of such business. But not every swap deal is related to an index fund and there are also some index funds that choose to deal directly in the futures market instead of going through a swap dealer. Such transactions are reported in one of the other categories, depending on the trader's designation. Interestingly, if we add up all the net long positions of these various spec segments, we arrive more or less at the 7.5 million net long position related to index funds. In other words, traditional and trend-following speculators seem to be on the sidelines at the moment with a nearly flat position.

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