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ECOM daily cotton market recap - Jan 31, 2007

Feb '07
New York Futures were initially called to open around 20 lower this morning as some follow through spec selling was spotted prior to the opening.

There was little to report of overnight business or even news, however of particular interest was that the US Secretary for Agriculture, Sec Johanns publicly unveiled the US plans for the 2007 Farm bill.

Of note for Cotton in particular are a proposal for a lower base loan rate (from current 51.92 to 45.70) as well as a 65% increase in fixed payments from 6.67 cents per pound to 11.08.

Market participants saw this as a bullish signal, with the likelihood of more acres being attracted to grains via the lower base loan rate, whilst grains also received a shot in the arm from the Farm Bill proposal, such was it's emphasis on developing alternative energy from ethanol and cellulosic research in particular.

The flow on of this announcement was for a surge in futures prices, which were curiously led by the spot March. One of the major merchants was a massive buyer of up to 5,000 March 55 calls for 12-25 points, whilst also being a large seller of over 1,500 Dec 55 and 58 puts. In response prices jumped in March up to 54.40 (some 105 higher) where it ran into some trailing commercial selling, having set off buy stops above the 54.00 cent area as well.

March / May spreading was again heavy between 100 and 105, where again it has met a very agreeable price medium for the long index funds and the short commercial trade. Prices ended up settling a little off the highs, but still with respectable gains to give back much of the early week losses to settle prices with active gains of 37 to 66 points. Estimated volume today was heavy at 45,000 contracts.

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