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Sales to China to increase in near future

Mar '07
The cotton market maintained its month long momentum, but only by holding on to gains made over the past month. The trading range remains intact and I continue to suggest it will hold into the April-June time period. The 55 cent barrier should prove sturdy enough to prevent any immediate rally in response to the USDA March 30 Cotton Planting Intentions Report. 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, at lease until the planting season nears its end.

The market is searching for more definitive information with respect to a laundry list of fundamentals including, Chinese demand for U.S. imports, planted acreage, early crop development, loan stocks, and whether U.S. growers will accept only a pittance for an equity payment or forfeit their cotton to the government CCC program.

Sales to China will increase in the near future, but not in the volume earlier expected. Each time the market eases above 54 cents or nears its 55 cent resistance, basis the May contract, merchants are able to buy enough CCC loan cotton from growers to satisfy current export needs.

China intends to use some two million bales of its reserve stocks, and coupled with imports of non U.S. cotton, along with limited purchases from the U.S, this will be enough to tide them over into the early summer. At that point they will be a bit more aggressive with the U.S. purchases. However, the loan cotton will, at the margin, compete with the early harvested 2007 Northern Hemisphere crop. Therefore, there will not likely be any market fireworks resulting from Chinese mill buying.

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