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Volatile price moves sink cotton market lower

May '07
The cotton market teased us again with the possibility that a bottom was finally established this week. A series of volatile price moves sank the market lower, and then in vigorous fashion, prices moved more than 200 points higher in rapid trading. Such activity hints at a market bottom and such is likely the case for the old crop July contract.

Yet, it was disturbing that nearby export sales and shipments declined in the face of futures trading in the 47-48 cent area. There is little doubt that we are bottom fishing with respect to old crop prices. The 47 cent level appears to be the low point. Yet, if prices move lower, the margin of error will be no more than two cents.

The new crop contracts present another picture, however. As was discussed the past weeks, December prices are set to ease lower with the expiry of the July contract. Whether December actually falls to near the July lows will be played out on both the supply side and the demand side of the price equation. Certainly the old crop carryover will continue as a burden on prices. Continued buying of U.S. cotton by China at the current pace will not be enough to pull the December contract higher.

U.S. export sales must experience a significant increase if December futures are to find help from the demand side. Too, while USDA projects the U.S. will export 13.25 million bales, that projection now appears to be more "hope" than anything else.

If market prices are not pulled higher by increased export sales, then the bulls only hope rests with a decline in 2007 production prospects. I have repeatedly commented that Mother Nature will determine price direction, suggesting that I do not expect a significant increase in Chinese purchases of U.S. cotton the remainder of the marketing year.

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