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China cotton to be higher than expected

May '07
The volatility exhibited in the New York July contract this past week was another strong suggestion that the recent life of contract low near 47 cents will support the market. The market rallied 100-150 points with July near 49 cents and experienced similar sell offs when prices rose above 50 cents.

The trade was very active in selling futures above 50 cents. Likewise, they supported the market on dips near 49 cents. Current trading patterns suggest that July futures will approach first notice day holding near the 50 cent level.

The new crop December contract should hold between 53 and 57 cents through the planting season. December has to be viewed as mildly bullish into the summer months. However, both the world and U.S. carryover levels will keep a tight lid on any attempted price advance.

Fundamental news continued mixed. U.S. export sales and shipments were positive, but domestic consumption continues to be lower than most expectations. Water problems plague the outlook for the Australian crop. In the U.S., the Texas crop is blessed with moisture but the Southeast is dry.

The Midsouth has adequate moisture, but is a bit on the dry side. Area seeded to cotton is China is likely to be higher than originally expected, especially in the high yielding regions. None of these factors appear to be sufficient enough to affect New York futures in the next couple of months.

Net U.S. export sales for the week ending May 17 totaled 356,200 running bales (RB) of upland and 13,700 RB of Pima. China opted for 118,000 bales of upland 9,900 bales of Pima. As expressed numerous times this season, while the Chinese sales must be viewed as positive, the volume is well below that necessary to spur the market higher. Turkey, Indonesia and Mexico continue to be very strong buyers at the current price level.

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