Bull Run In Cotton Nearing An End?

March 20, 2013 01:22 AM

What Traders are Talking About:

* Cotton run nearing an end? Cotton futures have run counter to most commodities, rallying in the face of U.S. dollar strength the past two months. But based on comments from the executive director of the International Cotton Advisory Council (ICAC), cotton's run may soon be coming to an end. He says China's aggressive stockpiling of cotton is artificially inflating cotton prices, which he contends would be around 60 cents or 70 cents per pound without that support. China's stockpiling program will be complete at the end of this month and the ICAC head expects the government to sell around 3 MMT of its estimated 10 MMT in state-owned cotton reserves domestically from April through August -- ahead of new-crop arrivals.But while China will attempt to sell cotton stocks domestically, it's also expected the government will grant new import quotas in April, which could keep cotton well supported.

The long and short of it: When the bull run in cotton ends, it will probably be in dramatic fashion, as is often the case. Be watching for a technical signal that the rally in cotton is complete. That will be the signal to finish 2012-crop sales and to make 2013-crop sales.

* Update on China soy cancellations. As I alerted you yesterday morning, Sunrise Group in China has canceled 2 MMT of soybean purchases from Brazil due to shipping delays and major congestion at ports. An executive of the firm told Dow Jones newswire they will continue to buy soybeans from Brazil and Argentina, but may use a different exporter, without giving specific details of how the canceled cargoes will be replaced. The executive also says his firm is not the only importer canceling Brazilian soybean shipments due to the logistics bottleneck.

The long and short of it: Markets had a muted reaction to this news yesterday as traders are taking a wait-and-see approach. If there are signs of Sunrise Group (and other importers) turning to the U.S. to fill their immediate needs caused by the Brazilian cancelations, it would be price-supportive for old-crop soybean futures. .

* Fed meeting concludes today. The two-day Federal Open Market Committee meeting wraps up today with the post-meeting statement expected at 1 p.m. CT. Investors will pay special attention to any mention of how soon the Fed may scale back or stop its stimulus efforts. While some hawkish committee members have spoke in opposition of the Fed continuing its $85 billion monthly bond-buying program, it's widely believed Chairmen Ben Bernanke will push for the stimulus to continue amid continued global economic headwinds. Bernanke will hold his quarterly press conference at 1:30 p.m. CT.

The long and short of it: The post-meeting statement and Bernanke's comments in his press conference will be closely monitored to see if there is any change in tenor regarding the Fed's bond-buying program. Some believe Bernanke will be more stern in his support of the stimulus measures to squelch some of the recent hawkish comments by several FOMC members.


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