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Buyers clearly in control of cotton market

Jun '07
NY futures market extended their gains, as July added 71 points to close at 51.76 cents, while December advanced 83 points to close at 57.49 cents.

This week's trading action added further proof that the market is in a different frame of mind compared to just a few weeks ago. Buyers are clearly in control of the market, as a glance at the candlestick chart tells us. Since turning the corner 17 sessions ago, the market has closed higher than it opened on eleven occasions, gaining around 500 points in the process.

Another sign is that bearish news no longer puts much pressure on the market, as any weakness is finding ready support. Take this morning's US export sales report for example, which showed relatively sluggish Upland sales of just 242'300 running bales and a reduction of 27'500 running bales in Pima.

With shipments also coming in below expectations at 407'900 running bales, the market initially sold off after the opening, but then quickly recovered back on support from both spec and trade buying, closing the session with slight gains.

Because the trade is already about 12 mio bales net futures short according to the latest spec/hedge report, it seems unlikely that it can add much more to this position. For every cent the market moves higher, these shorts cost the trade about 60 mio dollars in margin calls.

Further, let's not forget that after redeeming over 7 mio bales of loan cotton over the last couple of weeks, shippers currently have to finance an unshipped inventory of about 11 mio bales, with a value of some 2.5 billion dollars.

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