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Cotton futures unable to find decent bid

Apr '07
Even though the US managed to sell nearly 1.4 mio bales over the last two weeks, which clearly proves its competitiveness, the futures market has so far been unable to find a decent bid and continues to slide from one contract low to another.

Speculators keep selling the market aggressively based on an ugly looking chart, while the trade may have been selling futures in anticipation of the impending AWP blending, which will likely force a considerable amount of cotton out of the loan.

This morning, Cotlook added three additional forward quotes to the new crop A-index, bringing the total to five, which means that theoretically we could see the start of the blending process as early as next. These five forward quotes averaged 62.75 cents today or 455 points more than the current A-index of 58.20 cents.

If this spread were to be maintained during the blending period, it would force the AWP up by that margin in a matter of six weeks. This would surely force merchants to redeem cotton almost immediately and hence we have seen increased trade selling in the December and March lately. So we do at the moment have a situation where there are plenty of reasons to sell futures, with the only buying interest coming from mills, be it in the form of new purchases or fixations.

For the week ending April 19, US export sales totaled a respectable 587'900 running bales, including both Upland and Pima sales for this and next marketing year. Like the week before, these sales were spread among 25 different markets and China was responsible for about a third of the turnover. For the season, total sales have now reached 11.8 mio statistical bales and a total of 7.1 mio bales so far been shipped.

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