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Cotton-grain price ratio must change for 2008-09

16
Jun '07
The bulls won the end of the year battle as the downtrend has been smashed. With option expiry for the July crop it is nigh time to turn our attention to the new crop months. Yet, the New York July futures contract must get through its first notice day next week before we can pull the sheets over it.

The pick up in demand, albeit slight, coupled with the absence of the need for any hedging in the near term, caught the market without anyone wanting to take it lower. The upside was an easy path during weekly trading. December is attempting its true first run at 60 cents and is now poised to scale that mark, but most likely not on this initial attempt.

Sixty cents plus is still a bit pricy for the New York December contract given the combination of a ten million bale U.S. carryover, a 52 million bale world carryover and 700,000 bales of certificated stocks. Nevertheless, the market should continue to press the 60 cent level in the near term.

Yet, the cotton-grain price ratio must change somewhat in favor of cotton for the 2008 and 2009 production seasons. Thus, that move is also becoming more evident with traders. However, for now the 57-62 cent trading range for December will likely dominate price activity.

World trade picked up a bit this week in spite of prices easing higher. However, by weeks' end global physical trade had slowed a bit with the higher prices in New York. The initial move higher did cause mills to chase certain qualities and this accounted for the increased trade. Additionally, with local prices increasing in China, Chinese mill buying also increased.


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