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Plexus Cotton market report

Mar '07
NY futures extended their gains this week, with May advancing 79 points to close at 54.49 cents, while December added 44 points to close at 58.84 cents.

Speculators were the driving force behind the markets recent gains, but they had to plow through a lot of overhead trade selling to make any headway. The spec/hedge report showed that speculators had bought a total of 16'472 contracts last week, adding 3'767 new longs and covering 12'705 shorts, and they continued to be active buyers this week as well.

The trade on the other hand sold aggressively into any rallies that saw an 1100 points May over AWP spread. Last week, trade shorts added 18'036 contracts, while trade longs (predominantly index funds) added 1'564 contracts.

When we look at the outright exposure of the various market participants, we had spec positions evenly matched at 9.26 mio bales long vs. 9.1 mio bales short as of last Friday, while on the trade side there were 11.22 mio bales long (of which around 9.0 mio bales belong to index funds) versus 11.38 mio short.

This steep increase in the trade's short position of over 1.8 mio bales makes sense when we consider that there were nearly 2.0 mio bales freed from the loan last week. According to preliminary figures released by the CCC today, a total of 1.98 mio running bales were either redeemed or 'POP-ed' last week, bringing the total number of bales outside the loan system to 7.9 mio running bales this season, with around 11.4 mio bales still sitting in the loan.

Most of these bales coming out of the loan are used to meet existing commitments. The total supply of 'freed cotton' adds up to around 14.25 mio statistical bales (6.05 mio beginning stocks + 8.2 mio freed from the loan), whereas total commitments amount to around 13.2 mio statistical bales so far this season (around 4.6 mio bales domestic + 8.6 mio bales of export commitments).

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