A.G. EDWARDS & SONS, INC.
One North Jefferson, St. Louis, Missouri
314-955-3050
(March 9, 2000) COTTON: Cotton trading could be characterized as fairly choppy over the last several weeks, 100 points up one day only to be erased the next. However, the overall trend remains higher as foreign supplies appear to be tighter than anticipated. Global prices, reflected by the Cotlook A index, have surged to 10-month highs and signifies a continuing shortage of high-grade cotton. The index has not had two consecutive down days since the cotton rally began late December/early January. The continual strength in U.S. cotton exports is drawing down U.S. carryover stocks.
The July/December old-crop/new-crop spread has shifted to an inverted situation for the first time since last June and supports the contention that this has evolved into a demand-led rally. The December futures contract, representing the 2000/01 crop has tagged along for the ride but has lagged the old crop contracts. This is due in part because the timing of this rally is raising expectations that U.S. producers, and possibly some foreign producing countries will respond by planting more cotton than earlier anticipated.
Cotlook A Index
Looking ahead to the upcoming season, the International Cotton Advisory Committee (ICAC) projected the gap between world production and world consumption would widen to almost 6 million bales. They pegged next year's world crop at 86 million bales compared to the current projection for 1999 at 87.9 million. The organization expects world consumption next season to rise to 91.9 million bales, compared to this year's estimate of 90.7 million. ICAC sees world exports rising to 29.6 million bales vs 27.1 million in 99/00 with much of the increase coming from a 1.9 million bale boost to projected U.S. exports.
We expect prices to continue to find good support off tightening world supplies. We are currently long July cotton from 6220, risking to 6100, with an objective of 6600.
Andrew Buderus