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Prices Still on the Path to Nowhere

Cotton prices continued their path to nowhere on the week and are expected to continue the same back and forth trading action in the narrow 2.5 to 3.0 cent band around 63.50 cents.

The weekly close was near 64 cents, while the world price A-Index continues to trade at 69 cents, plus or minus 100 points.

December options expired this week with little or no fanfare, but delivery notices are still some two weeks away. To date, the December delivery period appears to be quiet, however that can change overnight. Nevertheless, look for certificated stocks to begin to increase.

The trading range will likely remain in place well into December and probably into January. Yet, new fundamentals could change the picture. However, the narrow trading range, between 62.00 and 65.50 cents, remains bracketed between the wider 61.00 to 70.00 cent range. Look for the bulk of trading activity to be between 62.50 and 65.50 cents.

World textile mills continue active pricing, but on an as-needed basis at the lower end of this range. A small amount of forward purchases is also being done, but the mills are generally sitting back and waiting for lower prices.

The December ICE continues to feel as if the lows have been established, as market neutral global supply demand estimates appear to be forthcoming. Too, country origin selling, including U.S. grower selling, suggests the market has endured more hedge selling pressure than has been realized – another signal that the lows are probably in.

Thus, with mills and growers expecting lower prices, the market psychology is clearly on the side of a bottoming market.

Neither a quick nor a fast turnaround are expected, but the market is setting itself in place for its seasonal January rally. Too, growers of quality cotton are advised to keep that cotton in storage for now. However, if the basis is very strong, growers should consider pricing the physical cotton and purchasing a call option in anticipation of rising prices. However, make sure the cash basis for quality is very strong.

USDA will release the November supply demand report with only minor changes expected. The U.S. crop is thought to be marginally larger, between 16.50 and 16.45 million bales. Exports and domestic usage are called unchanged. Thus, carryover will be unchanged to marginally higher.

Increased exports could offset any potential increase in carryover, yet it does not appear likely that exports will be change at this juncture.

There have been a number of questions regarding exports.

Exports sales are far ahead of the five year average pace. Yet, export shipments are behind the pace, and concerns have been raised regarding cancellations and/or declining demand. Demand remains good and continues to exceed the prior year’s level. Too, recall there is more hand-to-mouth buying this season – possibly more than ever witnessed in the cotton market. Nevertheless, it will be prudent to monitor actual export shipments as well.

Mill sales appeared to be very strong this week, possibly signaling that the mills are coming to the conclusion that the lows are already in the New York market.

The world situation is forecast to remain much the same, but could see a slightly higher production number in India and the possibility of a lower number in Brazil. World carryover will remain unchanged to marginally lower.

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