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Weekend cotton export business attributed to early highs

Apr '07
Finally some action in the cotton market. The electronic session began the day higher, with some over the long weekend export business attributed to early highs. There was a large deal of fund selling noted on the opening though, and a 5 higher opening in the futures pit ensued.

The opening levels would prove to be the daily highs though, as there immediately became a weak tone on the May/July spread. Bear spreading out of the index funds was especially noted, along with the usual front running to such activity. Today was the first day of the “official” Goldman Sachs index fund roll, so along with all of the copycat funds, there was a lot of liquidity in the bear spread.

The May/July spread quickly moved beyond traditional US full carry to 170, then 180 and finally bottoming out the day at 190 premium to the July contract. This pressure also weighed heavily on the spot May, which dropped through the 53 cent level, through last week's lows at 52.87 and thanks to a scattering of fund sell stops, it was all stations to 52 cents by early afternoon.

Commercial trade were good buyers on the way down, mostly for mill fixations. Support was particularly noted around the 52.00 cents level, but by this stage the funds became MOC sellers, knocking values out to their lows again, showing losses of between 81 and 106 on the actively traded months.

Today's lows in May were significant, reaching their lowest levels since February 20th. Estimated volumewas absolutely massive, at 73,310 lots. This figure would set a new record for daily volume, eclipsing the 68,047 set on Feb 14th, 2007. Tomorrow morning's focus will of course be on the USDA monthly World Supply and Demand estimates.

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