UK : Cotton - laggard in bullish macroeconomy

NY futures advanced this week, with December gaining 142 points to close at 65.15 cents, while December'08 rallied 210 points to close at a new record of 75.10 cents.
After spending the previous twelve sessions in a relatively tight trading range, during which December closed no lower than 62.46 and no higher than 64.25 cents, the market finally broke out of this sideways pattern today in heavy volume of 29'600 futures and 21'700 options.
We believe that the driving force behind the market's renewed strength is the performance of December'08, which today settled at a record close of 75.10 cents, with the spread to spot December now stretched out to 995 points or 83 points a month.
In analyzing the relative performance between the two Decembers, it becomes evident that Dec'08 is taking over the leadership role.
During the previous two peaks on July 13 and September 27, the spread between spot and forward Dec measured only 510 points and 777 points, respectively. Today, as we have already mentioned, this difference stands at 995 points, reflecting almost full carry, which means that this band cannot stretch much further.
But who will be the stronger force in this tug-of-war, the near-term bearish outlook that many in the trade subscribe to or the longer term bullish scenario, which hedge funds are betting on?
December'08 has seen a lot of buying by hedge funds recently, as they see cotton as a laggard in a bullish macroeconomic environment for commodities, which is based on strong demand in emerging markets, inflationary pressures and a weakening dollar.

Cotton is one of just a few remaining commodities that have bucked the bullish trend so far, mainly because sharp yield increases were able to keep output at par with rising demand. But the cotton market seems to have reached an inflection point at which it is becoming increasingly difficult for production to keep up with consumption, particularly in view of strong competing crops that are likely to lure acreage away from cotton.
USDA Chief Economist Keith Collins added further credence to this theme today as he told the House Agriculture Committee during a hearing on farm-sector trends that in his view cotton and corn acreage would slip to 10 mio acres and 87 mio acres, respectively, while soybeans and wheat would see higher plantings of 70 mio and 64 mio acres, respectively.
Collins further predicted that US cotton stocks would drop from 6.4 mio bales in 2007/08 to just 4.0 mio bales in 2008/09, while corn inventories would also fall quite considerably, from 1'997 mio bushels in 2007/08 to just 1'157 mio bushels in 2008/09.
Even soybeans should see a marginal drop in ending stocks despite the higher acreage, while wheat is the only one expected to show a rebuilding of inventories in the 2008/09 season.