Bumper export sales help recover NY cotton market

01 Oct '11

4 min read

Markets reacted with some relief to the news, because this latest money-printing scheme seems potent enough to postpone any immediate sovereign debt or banking crisis. Although the printing of money is bullish for commodity prices in the longer term, the fact the it is Euros that are getting printed in large numbers may temporarily lead to a strengthening of the US dollar and thereby weigh against commodities.

So where do we go from here? There is currently no compelling reason to expect the market to break out of its sideways trend, which is defined between 93.20 and 115.47 cents. The "Chinese Put" (Chinese Reserve buying) seems to be in place for now and glancing at the latest CFTC figures, we notice that the trade has bought over 10'000 contracts net last week, suggesting that traders find value in prices below a dollar.

At the same time we cannot get too excited about the upside either, because Northern Hemisphere crops are moving in fast and mills are in no hurry to chase after cotton other than filling immediate needs, especially with yarn prices tapering off. Also, with the certified stock likely to become littered with short-staple cotton over the coming months, we should see a strengthening of the basis for premium grades. The way this may play out is by NY futures moving towards the lower end of their sideways range, while premium grades remain near current levels or move slightly higher.

Plexus Cotton Limited

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