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Healthy net sales of cotton for week ending April 26

May '07
The decline in the New York new crop December futures contract below 53 cents continues as a testament to the excessive world cotton supply, but primarily amount of U.S. cotton available to the world market. The basic economics lecture of supply vs. demand is playing out in plain view day after day in the New York cotton trading pit.

Granted, this supply demand battle is fought everyday, but the ever increasing 2007 carryover stocks of U.S. cotton have hammered this market lower as it becomes evident-day after day-that estimates of U.S. carryover will be increased. The 50-52 cent price floor I expected offered little to no support as New York prices eased below that level. In fact, this week's trading suggests that the old crop July contract will fall at least to the 46-47 cent level before expiry.

With U.S. carryover all but assured to climb above 10 million bales, or at least 700,000 bales more than the current USDA estimate, there is concern that the July futures contract could fall below the 45 cent level. Nevertheless, I am of the opinion that cotton futures, at 45 cents, will be plenty cheap for spinners and the market will find support.

However, the flip side of that equation does imply that the new crop December contract continues to decline in the absence of crop development problems, and as old crop CCC loans expire, one way or another, the old crop will come to the market before the new crop is available-thus depressing new crop prices. This does paint a dismal price scenario for 2007 crop prices well into calendar year 2008.

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