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Sharon Johnson: Upside price potential

In the US, the final ginnings lower production figure was adopted this month. Domestic consumption was eased up 100K netting a decline to ending stocks by 300K to 1.6 mln bales.  In the world, beginning stocks got a slight bump up due to higher imports from 2009/10.  Production was cut in Turkey, Pakistan and the Afr Fr Zone vs a small increase to Brazil.  Consumption was upped in Mexico, Thailand, Vietnam and especially Pakistan.  Trade saw a few changes but the most notable was a decrease in China’s imports by 500K. Ending stocks were lowered by 780K of which 480K is in the foreign category. At 41.55 mln bales, global carryout is just slightly higher than the 1995 level of 40.1 mln bales.   


PRICES: As mentioned in my brief email, today’s carry-out figures for the
2010/11 crop year are a bit tighter with ending stocks lower in the US, China,
India, and Pakistan while being higher in Brazil.  

Although more
bullish than last month’s numbers, cotton prices are already at record high
levels and reports from notable credible sources show mills being resistant to
these high prices.  The same is
also true for various synthetic fibers so today’s numbers are a bit of a
surprise.  Hence, prices may
experience difficulty in moving much, if any, beyond contract highs but also
finding support on any breaks suggesting a wide sideways trading range with old
crop for the next several weeks.  I
suspect by the time demand rationing is obvious to the USDA meaning demand is
cut, the May contract will be history and little time will be left for the July
contract to trade (its FND is June 24). New crop is likely to bear to brunt of
cuts to demand especially if spring plantings go well and in general the world
crop is off to a good start.  I
will write and release a full report this weekend covering all of the changes
in greater detail. 

Note: Today is the last trading day with May options.

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