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Cotton market remains in 7-months trading range

Mar '07
Patience remains the order of the day as the cotton market remains in its now seven month old trading range around 54 cents. While the recent weeks have seen the market spent a bit of time below 54 cents, a 54 cent equilibrium price is fairly well established. Declines to the 52 cent area have uncovered mill business while rallies above 54 cents have cut off most exports.

Additionally, in recent weeks, rallies above 54 cents have tended to pull more cotton out of the CCC loan program. This strongly suggests that the market will get all the cotton it needs-and some-out of the CCC loan for the remainder of the year. The narrow three cent-52-55 cents-trading range remains in play and will continue for at least another month. However, large scale plantings will begin in about three weeks. At that point in time, Mother Nature can affect the market as she so chooses.

For now, the sheer volume of U. S. cotton stocks held in the CCC loan program, and the 600,000 plus bales of certificated stocks will keep a heavy lid on the market. Too, certificated stocks are now working their way toward 700,000 stocks. Yet, given that the market is covering only part of the carrying charge, owners of certificated stocks are paying a fortune to control the stocks.

The owners of the stocks-very large merchants and cooperatives-are not comfortable paying storage over an extended time period. The owners must feel that the market has a bit of rally in the future. Too, a rally near the end of next week should be anticipated.

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