Global Cotton Production Estimates Reduced by 1.6 Million Bales

Cotton prices corrected quite sharply in the last half of the week. From a technical point of view, the rally had been almost a perfect 50% correction of the collapse from the March highs to the low on April 1st. The May contract which goes into delivery Wednesday night, lost 328 points, July 309 points, and Dec 220 points. What will make this upcoming delivery period potentially the most interesting in a long while is that not only are cert stocks at record highs but the market differences are actually reflecting more than carrying charges. This could make for a temping situation for a big fund that might have the nearly 400 million dollars it would take to take delivery of that much cotton. Cotlook reduced their estimate of world production for the 2008/09 season by 1.6 million bales. That included a 482,000 bale reduction in China and 353,000 bales reduction in the US. Other significant cuts were predicted in Turkey and Brazil. Cotlook reduced their estimate of the world carryover by 1.575 million bales. China's cotton plantings in some areas will only be about 85 percent of a year ago. However, increased production on a year to year basis is expected in India and Pakistan. Seasonal patterns also fail to support the bull argument at least for the next couple of weeks. In fact the July cotton has declined 13 of the last 15 years in the three week period between the middle of April to the end of the first week of May.

Source: Swiss Financial Services