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Cotton receives support from the higher CRB index

16
Apr '08

Not surprisingly, we had another quiet and lackluster session. NYF was generally holding firm supported by the overall commodities markets. Chicago grains traded higher overnight, which led to a friendly open on ICE. It then steadily traded higher in expectation of continuous strength coming from the grains re-open.

Crude oil settled at the record high of $111.76 per barrel on Monday, and was challenging the $114 level today. The wholesale prices rose by 1.1% last month against the general anticipation of just 0.4%. The session was trading at around 100 points higher until one hour to options close when a slight cool off was seen.

But it was only temporary as friendly options offered the market some support. All months settled at around 130 points higher by end of the session.

As per the Spec Hedge report as of Friday April 11, the specs have reduced their long positions by 4,800 contracts, and at the same time have reduced their short positions by 13,000 contracts. The net spec position is 10.8% long, up 3% from the week before (please see charts on page 2 in attached PDF). Open interest was reduced by 5,200 contracts over the week with majority of the reduction happening yesterday. The total open interest was reduced by 7,200 contracts Monday to 261,794.

A little nice pop is seen in the technical picture today as cotton received support from the higher CRB index. With only 7 days to K'08 first notice day, the May July rolling is still a major part of the daily activities. May open interest was lowered by an impressive 13,800 contracts yesterday.

Even though the cert stocks level keeps building higher, which is putting pressure on the futures price, the current spread level is a good incentive for trades to carry their inventory to the next cover month, rather than delivering them against their short futures. As what we said before, watch outside commodities markets for direction in cotton.

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