Morning Futures Roundup

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Fiber Flop
 Fundamentals

Cotton futures have pulled back in recent sessions, held back by lower demand from textile mills and an increase in short-term supplies.  Mills have been reluctant to keep-up the pace of purchases in the face of tight supplies and rising prices.  China sold 7 million bales of the fiber from its reserves, which amounts to about 2 months of domestic demand from mills.  This could result in significantly lower demand for US imports in the near-term. 

The rally that had stalled out recently began in late March, as traders viewed the  commodity as undervalued.  The rally then accelerated Cotton when traders became more bullish on the economic outlook, pushing prices up to the 61.67 level.  This run-up in prices has hurt demand and turned the near-term fundamentals bearish. 

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The long-term picture for the fiber, however, is expected to remain bullish.  Inflationary pressure and an eventual recovery in economic conditions are expected to add outside support for the market.  A sharp increase in metal and energy prices could spill over to other commodities, especially markets that may appear "cheap."  US acreage is expected to shrink to 74 million acres for the 2009-2010 crop year from 76 million acres the previous year. 

Global demand is expected to rise to 107.1 million bales this marketing year, up from 105.06 million last year.  In the near-term, Cotton may continue its choppy, sideways-to-lower trend on lack of fresh news and falling open interest.  A clearer weather outlook for western and southern Texas could result in more orderly trading.



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