It was a very interesting and confusing week to say the least, with the market sending us a lot of mixed signals. When we simply look at NYBOT futures, one has to get rather depressed by this latest collapse in prices. Unable to find any support, futures prices have clearly broken down on a deteriorating technical picture with all active months from May to December posting new contract lows this week.
The latest spec/hedge report gave us an indication that it was mostly new spec shorts that pressured the market, as they increased their positions by 11'702 contracts last week, while trade shorts actually covered 12'495 contracts. On the long side there was not much of a change, as spec longs added just 524 contracts, while trade longs liquidated 1'317 contracts.
Overall, specs were basically square at 0.2 percent net long, as they were holding around 10.8 mio bales on both sides. The trade on the other hand carried about 12.1 mio bales in longs and shorts, although on the long side almost 10 million bales belong to index funds.
Contrary to the futures market, the A-index actually ended the week with a 5-point gain, as it calculated still at 59.00 cents this morning. When we examine how the individual components of the index changed during the course of the week, we had Central Asian up 25 points, African down 25 points, Memphis/Eastern down 75 points and Indian up 75 points.
Paraguayan, which was still among the five cheapest last Thursday, was also up 75 points but got pushed out of the index by California/Arizona, which dropped 100 points. If we break the index down into foreign and US quotes, we have the four foreign quotes that were part of the index last Thursday up by an average of 37.5 points, while the two US quotes dropped by an average of 87.5 points. What this is telling us is that foreign prices refuse to go down despite the weakness in New York, while US quotes are still following the futures market down to some degree. But does US cotton really have to get cheaper?
Not if the latest US export sales report is any guidance! For the week ending April 12, export sales reached a marketing-year high of 796'300 running bales of Upland and 38'200 running bales of Pima cotton. The only blemish in this report was the still lackluster shipment number of just 273'000 running bales.
For the season, total commitments now amount to 11.34 statistical bales, whereof 6.7 mio bales have so far been exported. In order to reach the current USDA export projection of 13.5 mio statistical bales, shipments need to average about 415'000 running bales from here on out.
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