US exports suggest prices between growths to remain viable
11 Nov '06
3 min read
However, the changes are small, and more importantly, the bearish New York certificated stocks issue far overshadows a friendly, but very small, change in the world supply demand picture.
World production was lowered 470,000 bales and is currently estimated at 115.72 million bales. World consumption was marginally lower, down 100,000 bales, to 120.88 million. However, world carryover was estimated to fall to 51.05 million bales as USDA also lowered beginning stocks 900,000 bales.
The net 1.21 million bale decline in carry over stocks from last month's estimate, could, on the surface be considered neutral to bullish. However, world carryover is still estimated to be above 50 million bales.
This represents a 42 percent stocks to use ratio and adds to the difficulty of breaking above the price cap in the near term.
However, the increase in U.S. exports also suggests that prices between growths will remain very competitive. The implication is that prices will continue to drift lower. The next support level is near 46 cents, the contract low. However, the bears are pushing for a 41-42 cent market.
The 46 cent level must be given serious consideration for the near term. However, the 2007-08 prospects discussed in past weeks suggests aggressive buying of July calls.
Additionally, growers should consider buying the July call if they price their cotton at harvest. Long, long-long term, the market will get very exciting.
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