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Small decrease in cotton sales expected

May '07
Another narrow range as the market opened higher and then struggled the rest of the day spending most of the time under 49.00. There was an early push by technical traders to fill the gap up to 49.25 which came within 1 pt. as the market high reached 49.24.

Not sure how significant this gap is, but it is certainly putting up a fight as the market only closed 10 pts higher on the day. Volume was equal to yesterday at a combined 12,000 futures and 8,000 options. This activity is better than we had on Friday and Monday, but still fairly quiet for an open interest which rose 900 contracts to 222,770 contracts.

Looking forward to export sales report tomorrow, we are expecting a small decrease in sales to 300-350,000 b/c, but shipments will probably stay steady at 350,000 b/c. This continued level of shipments may force the USDA to cut exports again this month for the 06/07 marketing year. As for the 07/08 marketing year, the early estimates are showing production close to 18.56 mb, consumption 4.65 and exports as high as 16.67.

This number looks on the high side considering that the USDA originally estimated the exports for 06/07 last year at 16.5 mb's and we might end up as low as 12.5 mb's before then end of the season. 14 mb's seems like a more realistic number, but this would do very little to draw down ending stocks that will probably break 10 mb's this season.

Technically we broke above the 9-day moving average of 49.05 and the RSI is starting to rise as well to 33.14. However, there is not enough volume to spark a rally that will hold. We will have to hope that there is some friendly news in the upcoming reports that will add support to the sideways consolidation in NY.

Click here to view graphical presentation:


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