Cotton market may feel pressure

04 Jan '08

2 min read

The firm session on Wednesday added some other impressive 10,000 contracts to the open interest. As market is getting into the overbought area, some correction was seen on Thursday. ICE opened higher supported by firm overnight grains trading.

However, the continuing traded up grains market and failing dollars didn't see the usual positive influence as cotton quickly turned direction and traded lower. The 80 point range was set at the early pit session with the high on Mar08 contract set right at 69 cents.

Overnight China Zhengzhou futures were seeing around 120 higher across the board stemmed from the NY ICE rally yesterday. ICAC released world cotton area forecast yesterday and it's projected to be stable in 2008/2009. World cotton area is forecast at 34 million hectares in 2008/2009, which is about the same this season.

However, the higher yields lead to expectation of increased production at 26.9 million tons, up 5% from this season. Global consumption is projected to see slight increase, which leaves a decline in world cotton stocks.

The estimated A index at 67 cents doesn't seem to justify the sharp decline in the stock-to-mill use ratio, but the bullish forecast might attract more buying interest from the funds.

Technically, we are trading in the range set by yesterday's session in correction of the overbought market. The nearby March failed to break through 69 cent level today, but may trade sideways and try to push for higher area in the upcoming sessions. Market has been dull during the holiday season, so tomorrow's export report is not expected to see impressive numbers.

As no fundamental news is around to trade on and outside commodities markets continue to be strong, cotton might feel the pressure to follow. However, scale up trade selling interest will pose a lid on the market short term.

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