Cotton futures bounced

Cotton futures bounced 50 to 75 points higher early on Thursday as we expected and held half of those gains for the day. Today’s supply/demand reports have one big surprise….a 400,000 bale increase to US export projections. Many observers had been worried that the USDA would reduce exports on this report but they actually increased them significantly instead. This is friendly to cotton futures.
The fact the USDA also increased world ending stocks takes a little bit of the luster away, but remember that these are US futures markets and they will respond more quickly to a decrease in US supplies than they will an increase in world stocks.

For the world numbers, USDA decreased India’s cotton production by 300,000 bales and decreased their mill use by 250,000 bales. China’s figures were left unchanged except for a 750,000 bale increase to their imports and an increase in their ending stocks by the same amount.
There have been rumors in China that China would soon announce they would increase their strategic reserves of cotton by 4 to 5 million bales and apparently the USDA is expecting some of that strategic reserve increase to come from US exports. Overnight, traded markets were steady while the US Dollar is making a new near term high on a better than expected employment report that showed 243,000 new jobs created.
Senator Schumer and his associates were successful in forcing an end to the Dubai Ports deal and this will likely embolden them to take up the issue of China’s currency next. Like Dubai Ports, we expect the Chinese government to concede the battle by strengthening their currency before the US Senate acts.
For today, we expect May to reach to the 55.10 level early and to hold most of the gains into the weekend and if we are correct, it will mark the start of the climb to the 59-60 cent level we expect in the next month.
Written by John Flanagan
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