The fifty cent lid on the cotton market seemed to tighten a bit this week as the November USDA supply demand report suggested larger carryover in the U.S. and increasing production in China in the face of stable demand.
The market continued to hold its cards out for every player to see. With increasing certified stocks, exceptionally strong export demand for U.S. cotton must surface before the market can move higher. New York futures will likely ease lower.
USDA increased its estimate of U.S. production to 21.3 million bales, up 640,000 bales from its October estimate. Primary increases were in Georgia, Alabama, Mississippi and Texas.
Domestic cotton consumption, reflecting recent business activity, was lowered to 5.2 million bales, down 100,000. The increased crop size led USDA to increase its estimate of 2006-07 exports to 16.2 million bales, a 200,000 bales increase over last month.
However, that is some 1.9 million bales below last year's export level of 18.1 million bales. U.S. carryover was increased to 6.0 million bales, 600,000 bales more than the October estimate.
Thus, the supply demand numbers, as currently forecast by USDA, suggest there will be little to no change in 2006-07 U.S. beginning stocks and ending stocks-somewhat of a bleak picture for prices.
The world supply demand report was considered to be slightly friendlier than the U.S. number, seeming to imply that higher prices were in the forecast.
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.
The market continued to hold its cards out for every player to see. With increasing certified stocks, exceptionally strong export demand for U.S. cotton must surface before the market can move higher. New York futures will likely ease lower.
USDA increased its estimate of U.S. production to 21.3 million bales, up 640,000 bales from its October estimate. Primary increases were in Georgia, Alabama, Mississippi and Texas.
Domestic cotton consumption, reflecting recent business activity, was lowered to 5.2 million bales, down 100,000. The increased crop size led USDA to increase its estimate of 2006-07 exports to 16.2 million bales, a 200,000 bales increase over last month.
However, that is some 1.9 million bales below last year's export level of 18.1 million bales. U.S. carryover was increased to 6.0 million bales, 600,000 bales more than the October estimate.
Thus, the supply demand numbers, as currently forecast by USDA, suggest there will be little to no change in 2006-07 U.S. beginning stocks and ending stocks-somewhat of a bleak picture for prices.
The world supply demand report was considered to be slightly friendlier than the U.S. number, seeming to imply that higher prices were in the forecast.
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.
