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Solid bid on May cotton futures expected

Apr '07
Options expiration today and after the last few sessions demise, it was with much interest as to where today's session would settle. As it turns out, the session started a little firmer on the electronic exchange, before opening the open outcry slightly higher than unchanged.

There seemed to be quite a solid bid on May futures for much of today, mostly out of the commercial trade who were likely performing a combination of exercise strike protection as well as hedging overnight export business, which has been a feature all this week as the flat prices drop.

The May / July spread narrowed in under these conditions, with July now being the principle hedge month for commercials. Most of the session this spread traded around the 150 area. New crop months also lost some value, despite a huge, near limit move in Wheat markets. It seems that the current carry out situation is just far too overwhelming for the market to bear for now.

Options trading was quiet, with hardly any May positioning, which made sense given the way 51 cents was holding up. One trade outfit was a buyer of 1000 July 54/58 call spreads for 80 points, but that was it for the volume. In the end the front finished up whilst the back lost value, May closing up some 29 points on the E session at 51.41. Estimated volume was again decent at 58,218 lots.

The CFTC reported that as of the 10th of April the specs held a small net short position of 1.7% short. This figure takes into account the index funds who own a net 97,080 long contracts, a truly staggering figure. Just as staggering is the size of the commercial long position which is now nearly 103,000 contracts net short.

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