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Big pull back in cotton export demand noticed this weekend

22 May '07
2 min read

Market had a good day as we technically broke out of our sub 50.00 c/lb. trading range and made new 4-week highs. The futures volume was relatively light at only 13,000 contracts, but the options were very active at almost twice that amount with call buying fueling some of the upside move.

Fresh spec support and short covering were also a big part of the move. The scale up trade selling is steady but should start to increase as we approach 51.00 cents for N'07 which would reflect an 1100 pts spread considering a 40.12 AWP. With only 20 trading days left before FND in N'07, we should see spreads pick up as we did get the N/Z back out close to 500 pts today.

Specs may be a bit shorter as of tomorrow's spec/hedge report, but we expect they have been big buyers on this quick 400 pt. correction and should be getting closer to unchanged. We still have weather problems in West Texas and Georgia as both dry and wet conditions continue to be an issue as we get closer to cutoff dates for planting. In either case, we have noticed a big pull back in export demand this weekend as Z'07 reaches 55.00 c/lb.

Most mills seem content to wait for a better buying opportunity later. Hard to say how much upside we have left, but the 51/56 area in N/Z'07 respectively will be a good indication in how much selling pressure the trade are able to exert against loan redemptions of possibly 5-7 million bales.

Technically, we are approaching the 50 day moving average and the RSI is starting to get into overbought territory at 54.40. We have reached almost 400 pts from the contract lows a week ago which is a very strong bounce after such a long downside. The gap still remains under the market and we should see support on any pull backs at 50.00 and 49.70 while resistance will start at today's high of 50.75 and then again at 51.00.

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