Cotton prices were under pressure all week as demand continues to

be the primary problem facing the market. World consumption,

especially in China and India, remains exceptional and on a very

steep demand curve.In the past this was all that was needed to

boost New York futures. Yet, with these two countries rapidly

expanding yields and production, the demand for U.S. crop

has gone lagging during the Northern Hemisphere harvest season.

All bets for higher prices remain placed on the expectation that

China will open its import doors very soon. Yet, for now it is

difficult to see the March contract trading above the 55 cent level.

The market should remain in a narrow three to four cent range into

the beginning of the New Year.

Historically, we see a rally in very early January and it should still

be expected. Yet, if March is in the 51-52 cent range, a three to four

cent rally would still fall short of 56 cents.

The December certificated stocks delivery period ended with nothing

more than a whimper as the stocks were the cheapest available supply

in a market that has no real buyers for U.S. physical cotton.

The large volume of old crop cotton that could be recertificated

will likely move to the export market because of the age penalties it

would encounter if recertificated. While this is positive for the market,

there is developing pressure to certify a large volume of the current

harvest. This could continue to keep prices under considerable

pressure. USDA's December supply demand report will be

released on Monday with only limited changes expected.

The U.S. crop could be slightly larger, as will be some other crops.

Yet, the overall world production level will likely be only

marginally higher. The principal change that many expect is that

USDA will lower its forecast of U.S. exports, currently at 16.2

million bales.It is noted that actual sales are some 3.5-4.0 million

bales behind last seasons pace and shipments are about 1.5 million

behind. To meet the USDA forecast weekly sales would have to

average more than 300,000 for the remainder of the 2006-07

marketing year.Too, weekly shipment would have to press near

400,000 bales for the remainder of the year. While such is possible,

it is not very probable. The forecast for exports could be lowered

as much as 400,000 bales, falling to 15.8 million bales.

Any reduction in exports will only add to the carryover level of U.S.

cotton. Domestic consumption is expected to fall as much as 200,000

bales from the current USDA forecast, although a reduction of that

amount is not expected to be in next Monday's report.

This, coupled with the lower export number could raise U.S. carryover

as much as 600,000 bales.The market is likely tightly tied in a trading

range that will not top 56-57 cents until the May or July contract months.

Yet, long term numbers point to higher prices.

Nevertheless, the fundamentals that support higher prices relate to the

2007-08 marketing year.Thus, as stated last week the attractiveness

of owing July 2007 call options on any market sell off that takes

March below 53 cents and closer to 52 cents.