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Merchant & export buying holds cotton market up

Apr '07
With the nearby New York May futures contract falling to new lows just below 52 cents on Thursday, speculators jumped into the trading ring and attempted to push prices lower. However, merchant buying and export buying held the market up and provided support at week's end.

With export sales increasing in light of increasing world consumption, the market is working overtime to hold the lows made just below 52 cents. While I offered that the lows were in, the market could slip another 100 points as it enters its final old crop trading month, the July contract.

The new crop December contract should have seen its lows and will grudgingly move higher into planting and plant development. USDA's April World Cotton Supply Demand Report, released on Wednesday, and was little changed from the March report, except for the expected significant reduction in U.S. exports and its impact on the world totals. I continue to feel old crop has found a low and new crop will ease higher. However, the burden of certificated stocks and a growing U.S. carryover will not allow for any near term upward momentum.

In its April supply demand report USDA lowered its estimate of U.S. exports by 500,000 bales, dropping it to 13.5 million bales for the 2006-07 marketing year. Earlier though to be over 16.0 million bales, U.S. exports for the year could fall another 200,000 to 300,000 below the current 13.5 million bale estimate. Additionally, USDA also lowered domestic cotton consumption below five million bales--to 4.9 million bales--for the first time in three quarters of a century and the days of Herbert Hoover and the Great Depression.

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