Remarkable strength in NY cotton market

20 Aug '11

5 min read

Even though the cotton market has once again shown remarkable strength in the face of deteriorating outside markets today, it is not impermeable against these negative forces and we therefore need to brace ourselves for some weakness over the coming weeks and months. The US is headed for a severe recession, although in reality it has probably never escaped the recession that began three years ago. The statistical recovery was simply created by massive amounts of money printing and stimulus packages, while the real economy has never gained any traction. What is most disconcerting as we are at this economic precipice is that unemployment is at over 9 percent, interest rates are near zero, Congress is focused on austerity measures rather than stimulus and the administration is missing in action. With Europe facing a similar scenario and even China and other Asian economies likely to slow down, it is difficult to keep an optimistic outlook going forward.

So where do we go from here? Trade short covering and renewed spec buying have given the market a boost over the last 5 sessions and positive momentum may lift prices even higher in the short term, but judging by what we see in the physical market and the global economy, we are not quite ready to jump on this bullish train. Unless there are additional crop problems, upside momentum is probably going to stall and values should drop back to around a dollar over the coming weeks. With the downside looking equally contained due to the issues with the US crop this season, our best guess is that the market will be rangebound in the foreseeable future.

Plexus Cotton Limited

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