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Cotton market continues to push higher

Jun '07
The acreage report was just what the bulls needed to break the upside resistance and mount a new rally. The market was trading almost 150 pts higher electronically right after the report was announced at 7:30 EST. The market then proceeded to push higher through the session to reach levels near limit up without actually locking up 300 pts.

However, soybeans locked up the limit once during the session and wheat closed down the limit while corn had only minimal losses considering it's acreage report showed almost a 20% increase over last season. Volume was heavy electronically with over 60% of the volume for a combined 37,000 contracts and the options combined for over 40,000 contracts.

Loan stocks fell 372,000 bales as of Friday to reach 1.7 mb's and cert stocks remained unchanged. The 2007 cotton crop is now estimated to have planted 28% less than last year with the acreage number for all cotton at 11.058 million acres. This is over 1 million acres less than the March estimate and the lowest planted acreage for cotton in almost 10 years (1989).

The biggest cuts in acreage came with a 700k loss in Texas and a balanced cut across the Southeast due to the severely dry conditions. Even though the crop is going to be lower in the future for the U.S. (17.5?), it is hard to imagine demand can remain near the USDA estimates based on the 3-year trading range that we broke out of this week.

Fundamentally, it is hard to see the market that much higher, but the grain market is having a very big impact on cotton and weather conditions are not ideal, so we may see further tests of the market near 65 c/lb.

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