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The market staged a massive short-covering rally this week that may in fact be a resumption of the longer term up trend. Leadership initially came from the nearby July contract, but the December contract briefly took over leadership late in yesterday’s session. The rally has been demand-led over the past year and the bullish demand outlook was bolstered yesterday by both the Supply/Demand and Export Sales reports. Yesterday’s supply and demand report lowered ending stocks for cotton for both the 2009/10 and 2010/11 crop years. The 2009/10 stocks were lowered to 2.9 million bales from 3.1 million last month. The 2010 stocks were lowered to 2.8 million from 3.0 million last month. This was due to an increase in exports for the current crop marketing year, 2009/10, which results in lower beginning stocks for 2010/11. Export sales were very strong this week with net sales for 2009/10 coming in at a very strong 624,200 bales and net sales for 2010/11 coming in at 198,700. This takes the cumulative total sales for the current marketing year to 107.1% of the USDA’s export projection versus the 5-year average of 102.4%. For the new crop, cumulative sales stand at 13.1% of the USDA forecast for 2010/2011 versus a 5 year average of 6.9%. Sales need to average 178,000 running bales each week to reach the USDA’s new crop forecast. The broad and long term nature of this demand suggests that it is based on continued expansion of the middle class in Asia. Recent evidence that wages are on an upswing for factory workers in China simply adds to the long term demand potential. The expansion in the US remains much more tenuous. Initial Jobless Claims dropped slightly to 453,000 this week, but this was slightly higher than expectations and it suggests that net job creation in the private sector remains limited. In yesterday’s action, the sharp rally in the overall cotton market and in the July/December cotton spread carried over into the start of the day, but the December contract closed the gap with July into early afternoon. Stocks registered for delivery against the ICE contract continued to plummet yesterday, hitting 795,994 bales versus the previous day’s total of 876,343 bales.
TODAY’S GUIDANCE: While the December contract initially lagged on this week’s rally, it may now be the leader. It rallied within two ticks of the late May high yesterday and looks poised to test the 83.50 to 84.00 level over the longer term. The sharp drop in stocks registered for delivery is a reflection of the strong pace of demand, and Chinese growth numbers suggest that we could see an acceleration of global demand in 2010/11. Over the shorter term, the December contract could set back into the 77.50 to 78.00 area before taking out the May high. First support in the December contract is at 78.15 to 78.25 and then near 77.50. First resistance is at 79.20.
Cotton Market Commentary – 2010.06.11
by Terry Roggensack on June 11, 2010
Below is a sample of our Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!
The market staged a massive short-covering rally this week that may in fact be a resumption of the longer term up trend. Leadership initially came from the nearby July contract, but the December contract briefly took over leadership late in yesterday’s session. The rally has been demand-led over the past year and the bullish demand outlook was bolstered yesterday by both the Supply/Demand and Export Sales reports. Yesterday’s supply and demand report lowered ending stocks for cotton for both the 2009/10 and 2010/11 crop years. The 2009/10 stocks were lowered to 2.9 million bales from 3.1 million last month. The 2010 stocks were lowered to 2.8 million from 3.0 million last month. This was due to an increase in exports for the current crop marketing year, 2009/10, which results in lower beginning stocks for 2010/11. Export sales were very strong this week with net sales for 2009/10 coming in at a very strong 624,200 bales and net sales for 2010/11 coming in at 198,700. This takes the cumulative total sales for the current marketing year to 107.1% of the USDA’s export projection versus the 5-year average of 102.4%. For the new crop, cumulative sales stand at 13.1% of the USDA forecast for 2010/2011 versus a 5 year average of 6.9%. Sales need to average 178,000 running bales each week to reach the USDA’s new crop forecast. The broad and long term nature of this demand suggests that it is based on continued expansion of the middle class in Asia. Recent evidence that wages are on an upswing for factory workers in China simply adds to the long term demand potential. The expansion in the US remains much more tenuous. Initial Jobless Claims dropped slightly to 453,000 this week, but this was slightly higher than expectations and it suggests that net job creation in the private sector remains limited. In yesterday’s action, the sharp rally in the overall cotton market and in the July/December cotton spread carried over into the start of the day, but the December contract closed the gap with July into early afternoon. Stocks registered for delivery against the ICE contract continued to plummet yesterday, hitting 795,994 bales versus the previous day’s total of 876,343 bales.
TODAY’S GUIDANCE: While the December contract initially lagged on this week’s rally, it may now be the leader. It rallied within two ticks of the late May high yesterday and looks poised to test the 83.50 to 84.00 level over the longer term. The sharp drop in stocks registered for delivery is a reflection of the strong pace of demand, and Chinese growth numbers suggest that we could see an acceleration of global demand in 2010/11. Over the shorter term, the December contract could set back into the 77.50 to 78.00 area before taking out the May high. First support in the December contract is at 78.15 to 78.25 and then near 77.50. First resistance is at 79.20.
Tags: Cotton, Softs
About Terry Roggensack