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Market expects to shift from neutral to bearish today

09
Apr '08
Tuesday session was generally weak but holding well considering the market anticipation of a bearish USDA S&D report tomorrow. Overnight ICE opened slightly lower and traded sideways in the early morning session. Chicago grains market opened at around neutral level from last night's close and gained slight margin during the session.

Cotton, on the other hand, traded steadily lower to create today's low at mid 71 cents on K'08 and lower 75 cents on N'08. Market then quickly turned direction on very light volume and gained part of the ground that it had lost. Some bullish options in the pit on December contract 90/110 call spreads also supported the bounce up movement.

The USDA S&D report to be released tomorrow morning is expected to be neutral to bearish. The general anticipation is in decreased U.S. exports and increased production numbers, which leaves a higher ending stock level.

The appreciating Chinese dollars are hurting the textile mill's profit margin, thus their ability to import the U.S. cotton, which is relatively more expensive than other growths. There is also news that production countries like Pakistan are working to improve their production ability. The effect of the report on the market, however, is uncertain, since NYF has not been trading on fundamentals.

Technically, we are trading in consolidation ahead of the USDA S&D report to be released tomorrow morning. Cotton offers have switched to N'08 and on the second day ofthe rolling by the large index funds, spread trading has dominated today's futures activities.

The N'08 chart on page 2 in attached PDF shows that we are still trading within the long term up channel. We could continue to trade sideways short term, but the growing cert stocks and neutral grains prices could add pressure to the market. The total cert stocks have reached just over one million bales including 81,000 bales awaiting review.

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