ICE Dec cotton gained a 116 points on the week as the long standing July – Dec inversion gave way to partial carry. Dec challenged resistance near 66.50 this week, but a bearish domestic S&D balance sheet ultimately led to weakness in FridayΆs trading action.

The USDA decided to “punt” with respect to adjustments to its domestic balance sheet, opting to wait until the June 30 acreage survey results are known before making any commitments. World S&D projections were more optimistic than expected, but again, how bullish can ending stocks approaching 95M bales be, especially considering the pace at which the Chinese are ridding themselves of excess reserve stocks?

We think that the USDA neglected to remove their rose-colored glasses before considering its US production projection of 14.8M bales. We want to be as hopeful and optimistic as possible for our producer friends, but, at an aggregate level, the US crop was most recently rated in 53% fair to worse condition (47% fair). Further, the USDAΆs decision not to increase its old crop export estimate puzzled many.

Old crop export sales have remained very respectable and shipments have continued at a strong pace. However, it certainly looks as if the bulk of sales over the past three assay periods were accomplished at prices near to below 63.50 – 64.00, basis July. Additionally, certificated stocks continue to accrue amid the lack of full carry in the market, indicating that the board is the best perceived sales option for many bales, at this time.

Producers got a pricing opportunity this week, in our opinion. While both merchants and producers remain lukewarm on forward contracting, at the money options look to be a good buy in the 300 pt range. Several of our customers took advantage of this and hedged a portion of their unsold crop with 6500 puts. We think this is a wise strategy. Watch for these opportunities to continue into next week, and keep in mind the fact that a hedged crop is only gambling the cost of an option, but an unhedged and unsold crop is gambling the full cost of production.

For next week, the standard weekly technical analysis for and money flow into the Dec contract remain bullish, with the market remaining in an overbought condition. Export sales for the week ending June 9are likely to contract Vs those reported this week. Shipments, however, could remain strong. China will return to the market on Mon, refreshed from the annual Dragon Boat Festival. Traders will likely pay close attention to weather developments ahead of the USDAΆs June 30 acreage report release.

Have a great holiday!