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PRUDENTIAL SECURITIES, INC.
One New York Plaza, New York, New York
(November 3, 1997) COTTON: Prices, at least for the December contract, managed to eke out a small gain for the week. That's a big market victory, coming in a week when the Dow Jones Industrials lost 270 points and the world seemed about to fall off the edge. In truth, our futures were a bastion of stability in an otherwise wild world. The range for the week was on)y 144 points, with closes squeezed into less than a penny's range.
So, we seem to remain range-bound. However, those parameters have been sinking steadily these past six months, so that it is not accurate to describe the market as being in a trading range. The observation begs the question, “Do we move up out of here, or continue down?”
Not content to leave all the records to the stock market, cotton's open interest continues to climb. Our somewhat whimsical observation that we are on the way to 100,000 contracts might not prove to be so wrong, though the market must now struggle with unwinding options and then the big December position. With that in mind, the big on-call purchase position is again a problem for the market. Last year, we worked through it, as the large net short position absorbed the fixations. Prices have obviously been more palatable for mills than growers. Here are the numbers:
Sales Purchases Ratio 1997 8,288 22,131 2.67 1996 4,476 15,729 3.51 1995 7,570 8,719 1.15 1994 6,378 10,317 1.62 1993 9,612 6,865 0.71 1992 5,937 5,047 0.85
Persistent large export sales have been food for the bulls. We have now sold 71% of the USDA upland export projection for this season. The following numbers show where we stood on that score the past five years: 43%, 76%, 58%, 95%, 90%.
We're one day away from the month when market letter writers begin to point out the seasonal tendency for prices to bottom out and rally into the spring. We've usually been a leader in that movement, but were less and less enamored of such an approach. It just leaves you unprepared for the peculiarities of each season. For our money, the table is not set properly for such a rally. Sure, the crops have suffered this past month, demand has been good, and prices are relatively cheap. Yet we feel very guarded about how Asian business will develop, and feel our biggest buyers have done most of their work, We'll stay with the trend.
This World Series was the first ever in which the home team won the first game and each alternate game. Imagine, a pattern we have never seen before! Maybe the market will reward us with an equally unique experience.
Herman S. Kohlmeyer for Ernest Simon
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