Even shipments improved somewhat this week at 291'800 running bales, although they are still lagging behind the pace needed to make the current USDA export projection of 14.5 mio bales. With three months to go until the end of the marketing year, total commitments now amounted to 13.7 mio bales, whereof 9.7 mio bales have so far been exported. Compared to last season, the pace of sales is ahead by 1.1 mio bales, while shipments are about 2.0 mio bales stronger.
Tomorrow's USDA report, which will show revised figures for the 2007/08 crop and provide us with a first glance at 2008/09 numbers, is likely to inject some new life into this sleepy market.
However, whatever these numbers may be, they should be taken with a grain of salt, because the USDA has by no means a crystal ball when estimating the current supply/demand situation. With so much of the world's supply and demand having moved to emerging markets over the last decade, it has become increasingly challenging to get a good grip on these numbers.
For example, last May the USDA predicted world production at 116 mio bales and world consumption at 127 mio bales, with ending stocks at 50.7 mio bales. That was actually not too far off from the current estimates of 119.7 mio bales for world production and 124.9 mio for world consumption.
However, while these differences of +3.7 mio bales (production) and -2.1 mio bales (consumption) should have resulted in an ending stock number of 56.5 mio bales, various revisions over the last twelve months and a change in the ominous "loss" column boosted the current ending stocks figure to a much more depressing 59.6 mio bales. Whether these stocks really exist remains to be seen, but we for one have a hard time accounting for nearly 60 mio bales in ending stocks by the end of this season.
So where do we go from here? The market seems to be digging in at the 70 cents level, with plenty of support both from a fundamental and a technical point of view. With the current strength in outside markets and with inflation fears flaring up, we don't expect any price pressure from hedge funds and chart traders right now, while the trade will likely remain a net buyer as it buys short hedges back against export sales.
We therefore do not see where the necessary momentum to break this strong support should come from. At the same time, there is still enough cotton available to keep prices from going too far north at the moment and recent rally attempts have quickly ran out of steam.
Therefore, the most likely scenario is for the market to remain rangebound until a catalyst emerges that forces the market out of this state of inertia. We still favor the odds of a breakout to the upside because we feel that cotton is cheap enough at current levels.
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