Scanning across supply/demand numbers for Pakistan one sees that end stocks are a routine 2.36 Mb. End stocks since the 10/11 year have been 2.5 Mb, 2.8 Mb, 2.7 Mb, 2.5 Mb, 2.8 Mb, and 2.4 Mb for this year. But in order to get to a normal end stocks level, Pakistan will have to import 2.7 Mb, and checking history for 2 decades there is only one year higher, 70/08 at 3.9 Mb. Pakistans average imports run from Mb to 1.5 Mb, so this extra cotton has to be pulled out of ROW supplies. In 2010/11 the Pakistan crop early in the year was thought to be 10.5 Mb, but was cut down to 8.6 Mb by floods. Last year Pakistan grew 10.6 Mb, but a combination of weather events has cut the crop to only 7.2 Mb, a level reminiscent of years from 96/97 to 98/99 when drought cut into production.
The world lost some 2.2 Mb in this report, while cutting only Mb from consumption. Ordinarily a loss this big would have meant several cents to the upside.
The steady decline in ROW stocks is the main reason the USDA refuses to back off exports, even though several statistical methods indicate a much lower number. The current cumulative figure suggests something as low as 7.6 Mb to as high as 9.2 Mb, so the market is waiting on hard proof and confirmation that sales will improve, before it goes up. If this market can confirm a carryout in the 3.0 to 3.2 Mb area, then price goes up, its that simple. In the grain markets, Soc Gen came out with a buy rec for corn, citing growing evidence of La Nina forming, and with that North America will be cooler and dryer, and also parts of South America. This is the first weather worry trade we have seen in a while, now we get to see if Soc Gen has any coattails. We are friendly to cotton.
The first resistance is the 89 day avg at 6250, and next is 6320 where 3 avgs converge. Momentum has turned slightly positive. On the spot chart outside of notice period, a double low exists at 6120, the low for 3 months. That is an appropriate place for sell stops on longs.
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