News Flash

NY cotton market comes under renewed pressure

08 Jul '11

5 min read

For the purpose of this exercise let's assume that a third, or 2.0 million of these 6.0 million bales were sold for shipment before November, i.e. before new crop arrives in volume. This would bring total export and domestic mill requirements for the July to October period to 4.7 million bales, against which there are just 3.7 million bales in inventory, plus whatever little new crop cotton starts trickling in. Nevertheless, it seems quite obvious that there is not nearly enough US cotton to meet existing obligations over the coming months.

Since merchants can't ship what they don't have, we will probably see additional cancellations or switches to other growths over the coming months. Based on the above numbers it wouldn't surprise us to see another 0.5 - 1.0 million US bales canceled. In contrast, there is still plenty of cotton available in the rest of the world, starting with the vast unsold supply in Uzbekistan and Turkmenistan, followed by positions in India, Brazil, Australia, Argentina and various African countries, which is where the current price pressure is coming from.

So where do we go from here? It has only been four months since the spot month (May contract) posted a synthetic high of around 227 cents, which is roughly double of what spot month (December contract) is currently worth. December closed right at important long-term support near 113 cents and given the oversold conditions we wouldn't be surprised to see a bounce of 5-10 cents from here. The market has gotten a bit too negative too soon for our taste and as we have pointed out last week, in the case of US cotton there is currently a rather large physical short position and a big short in futures against foreign cotton, with a US crop that is getting smaller every week, which is a dangerous constellation.

Plexus Cotton Limited

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