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ECOM daily cotton market recap - Jan 30, 2007

Jan '07
Most commodity markets had a nice rebound today especially in the grains and energy, but the cotton market still struggled with only a slight bounce after a lower opening. This might have been related to another down day in the orange juice market which is only a couple of pits away from cotton. They traded down the 10 cent limit after a 6.5 cent fall yesterday.

The remainder of the day was spent around unchanged as we closed down 22 points on the H'07 contract. We have been slowly returning to the lows that were set on the day of the USDA S&D report of 52.85. The market did bounce back up to 55.50 after grains were locked up the limit, but have slowly been coming back down. We will get a peak at how we anticipate that to affect new crop acreage at the NCC convention on Friday.

Spec hedge was down slightly to 2.2% from 2.8% last week. However, after two weak days in NY this week, there seems to be more spec selling and the trade are becoming scale down buyers. The spreads continue to dominate the majority of the business as most merchants continue rolling short H'07 position out to the back months. The USDA export sales report on Thursday will most likely be lower than the last two weeks as the export market has been very quiet for new crop U.S. cotton with Chinese New year coming soon.

Technically, the next support will be the low from January 12th of 52.85 as the market needs to hold that area to keep from going lower. The spread keeps widening slightly each day, with our estimate that it may get out another 20 points farther before first notice day.

We have option expiration a week from Friday, so will be interesting what low in H'07 will be defended. Some think it may be around 53.00 and if that is true, we may see the K and N'07 contracts stay firm as H'07 drifts a bit lower.

Click here to view graphical presentation:


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