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Uptrend in cotton prices continues this week

10
Mar '07
Cotton prices continued their uptrend this week, but faltered once the New York May contract eased to its 55 cent resistance level. Price rallies were their own worst enemy as each higher price tick brought cotton out of the CCC loan-thus generating merchant hedging (selling of futures).

With the U.S. crop locked in the CCC loan program, price rallies will be quickly stymied by hedge pressure. As U.S. carryover stocks threaten to climb to 9.0 million bales, New York has little reason to move higher in the next 60 to 90 days. Moving into the spring months, higher prices can only come from either widespread planting/plant development problems or, as was the situation last year, very sizeable export sales to China.

Of course Mother Nature cannot be prejudged, and while China is likely to increase its purchases of U.S. cotton, time has worn too thin to allow for the volume of exports sales even remotely similar to last season. The narrow three cent, 52-55 cent range will dominate trading with possible momentary lapses either way. The wider 50-57 cent range will prove to be an iron curtain.

USDA released its March Supply Demand Report with an answer to the question of U.S. exports. In doing so, it presented a blueprint for prices to struggle under the pressure of excessive carryover stocks into 2008.


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