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Cotton Price Analysis December 26, 2007

 
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schong719
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Joined: 17 Jul 2006
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PostPosted: Tue Dec 26, 2006 6:53 pm    Post subject: Cotton Price Analysis December 26, 2007 Reply with quote

Cotton prices continued their move higher today. March futures opened 20 higher at 55.98, and then made a quick low of 55.70. From that point a steady climb ensued with March making it above 56.00 and eventually, (as of this writing) testing resistance at 5640.



I see resistance at 5640 to 5685 in March and Then at 5720. March should find support around 5567-5570, which as of this moment is still the day's low.



The cotton market is being touted as an undervalued asset and as such is receiving strong support from fund money finding its way into commodities. Look for this trend to continue. Also expect continued selling from the trade as values approach a differential close to 1,100 points above the AWP, last set at 4583. This selling is regarded as a function of hedging against cotton coming out of the loan. That cotton will still need to be sold. What will prove interesting will be whether prices need to come down to attract buyers. Another school of thought is that exports will continue to be stymied until a resolution is sought.



There is concern among cotton merchants that the current cotton program has had the net effect of making the CCC loan program the primary market for cotton. This, it appears, is causing congestion in the pipeline for US cotton and hampering exports. As a result they are exploring alternatives. They seek remedies which would still provide a safety net for US producers, but create incentives to move cotton out of the loan and into the market. This is no easy task, but the bottom line is that hopefully something can be achieved to help stimulate the exportation of US cotton. Personally, (and this has always been my view), why not simply replace the loan program and give US farmers put options on their crop. The costs would be reasonable and it would provide a simple straight forward solution.



The 9 day moving average is at 54.95, the 18 day moving average is at 54.13 and the 40 day moving average is at 53.38.
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