Cotton merchants continue support on dips near 54 cents

06 Jan '07

3 min read

The seasonal New Year cotton rally failed near the 57 cent level, just the actual New Year opened its eyes. The meager four cent gain was followed by a near three cent retracement in just three trading days; leaving the market fighting for its technical life.

The absolute failure of the export market has sounded its horn over the past few weeks and reduced a market with bullish signs to one that traders hope can hold a neutral position. Merchants have and continue to provide support on dips near 54 cents; however, they have not exhibited any confidence once the March contract pulls above 55 cents.

The failure of the March contract to move above 57 cents during it recent rally has left the market vulnerable to a very wide eleven cent trading range-from a low of some 46 cents to a high of only 57 cents. The weak demand for U.S. exports, coupled with the increasing likelihood that China will not be a large scale buyer of U.S. cotton until March, at the earliest, has placed the New York contract on the defensive.

The other side of this double edged sword is that New York certificated stocks are still near 630,000 bales. Since the certificated stocks are of somewhat questionable quality for use in China, Chinese mills will only have interest in them at a much reduced price. Thus, since the cert stocks are not a desirable home for China, a buyer must surface if New York futures are to move higher.

Net export sales of upland cotton for the week ending 12/28/06 were an anemic 57,600 bales. Thus, export sales for the final two weeks of 2006 were will below 200,000 bales. China was all but absent from the U.S. market during those two weeks. The primary buyers were Mexico, Turkey and Canada. The market continues to suffer for the lack of a buyer of the cert stocks and the current lack on interest in U.S. cotton from Chinese mills.

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