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Cotton markets in narrow range

Jun '07
Market continues to trade light volume in a narrow sideways range as we await the first acreage estimate to take into consideration the poor planting conditions in May for Texas and the Southeast in addition to the competition from corn and beans.

There is a range of one million acres with most expecting the cut to be less than 500k at the most. In any case, this looks like the bulls' last chance at getting some very friendly news nearby to break the highs and mount a new rally.

Volume was estimated at only 10,000 futures and 16,000 combined options as the majority of the day was spent in the middle of the 50 pt daily range of 61.50 and 62.05.

Export sales and shipments were within expectations @ 210,000 running bales of which 169K were destined for China and 18.8k for Turkey. However, shipments did start to come off 15% from the highest level of the season last week to 386K.

Unfortunately, this is not enough to reach the USDA target of 13 million bales and we actually needed to maintain the 450K for the remaining 6 weeks to make that level of statistical bales.

Cert stocks remain unchanged, but we may see a heavy redemption tomorrow based on last weeks 46.73 AWP when the market traded limit up and allowed a spread to be made close to 10 cents based July. Will wait and see how the acreage report comes in tomorrow as weather and size of the crop are the main drivers of the market in the short term.

Technically, the market continues to feel overbought at 71 RSI and may be ready for a small correction below 60 cents if the acreage number comes in close to 12 million acres. However, a number closer to 11 million acres may break through the 62.25 high set earlier this week and make a run at the all time contract high of 63.50 c/lb.

There are certainly buy stops above the market and a new high could also trigger further trade short option covering.

Click here to view graphical presentation:


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