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Strong AUS$ & quality to drive cotton futures

May '07
Last week I said that cotton prices must go lower in order for the world to consume the current over supply. I know that I do not need to inform cotton producers that prices are already low in Australian dollar terms and it was good to see that lower prices in New York Cotton futures have finally managed to stimulate solid trade over the last few weeks. Spinning mills around the world have taken advantage of the cheaper market to fulfil nearby demand.

However, a burdensome supply is still hanging over this market and is keeping buying very much 'hand to mouth' with little incentive or desire to extend coverage beyond the next few months. I would expect this kind of buying to continue for the short term until stocks are drawn down further. This coupled with a strong Australian dollar should continue to conspire against Australian dollar returns.

The next stage for the cotton market post the burdensome supply situation will be Northern Hemisphere new crop production and consumption. Northern Hemisphere planting is mixed with slow progress in the US, normal progress in China, and long range forecasts for India's monsoons favourable. The USDA reported the US prospective crop 11 per cent planted on 22 April verses 21 per cent 12 months ago and a five year average of 16 per cent.

The good news is that global cotton consumption for next season is on track to increase from this season by 3 to 4 million bales. It will now come down to production and this is in the hands of Mother Nature. Of course Australian producers will be not only battling cotton futures, but also the Australian dollar and water access.

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