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Cotton market consolidates position towards weekend

29
Mar '08
We opened overnight slightly higher, but found good selling pressure all day long as the beans and grains opened lower along with bearish options. We are now at a very critical price level where physical business can be generated, but this will soon dry up if mills feel like there is a chance for the market to go lower. Funds have been lifting long positions each week on a consistent basis as the market just does not have that same downside support like the first of the year.

Monday brings an end to this volatile first quarter and we may be in for further profit taking as we continue to see light volume, falling open interest and lower volatility. Futures were estimated at 25,000 lots with 19,000 options as the market consolidated positions heading into Monday.

The big news will be how the USDA divides up the 08/09 acres. However, the growing sentiment is that cotton will not lose more acres to the competing crops and we should have a number near 9.5 million acres which is only 12% less than last year. Taking that into consideration we may have a crop for 08/09 between 16/17 million bales depending on the abandonment and yields. Based on growing stocks to use ratio for 07/08, the picture for cotton does not look as optimistic as it did and we are feeling like the funds are taking ammunition away from beans, wheat and cotton and focusing more on corn.

Technically, we crossed the 9 and 50 day moving averages which may lead to more testing of the downside. This could lead to some technical sell signals and with growing cert stocks and falling open interest, we could break the long term upward trend channel just below 69 cents. The hedge funds may take some more profits at the end of the quarter which is bearish. The commodity complex is trying to establish a bottom after some big pulls backs recently, but we may have to test the lows a few more times before we can make a solid rebound.


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