NY cotton market drops

22 Oct '11

5 min read

Earlier this week a massive dust storm or 'haboob' swept across West Texas, reminding locals of the 'dust bowl' in the 1930s. Although damage to the open crop seems to be limited, it was a reminder that the severe drought that has gripped the region is far from over. Just a few weeks ago the US Climate Prediction Center confirmed that 'La Niña" conditions have returned for a second year in a row.

This means that we are likely to see similar weather patterns as this season going forward, with the West Texas drought lingering on and Australia looking at another 'wet year'. The Northern Hemisphere is likely to experience another very cold and blistery winter, which will be exacerbated by a colder than normal polar air mass due to recent volcanic activity and the current negative phase of the Pacific Decadal Oscillation (PDO).

So where do we go from here? The market will probably remain on the defensive in the near term, until prices reach a level at which the certified stock becomes more attractive in terms of cash cotton, or carry returns to the board. However, it is not all doom and gloom and there are certainly some bright spots to consider, such as the stronger than expected retail sales in the US, which last month were led by clothing stores at +8.3%.

Also, inflation is starting to flare up despite the slow economy, with the US Producer Price Index (PPI) increasing at about 7% per annum, while the Consumer Price Index (CPI) rose nearly 4% per annum. As mentioned last week, once investors perceive that their hoarded cash is losing out against inflation, they may start chasing tangible assets again.

And while China may take a backseat over the next couple of months, there will be more import quotas coming this season and the Reserve is likely to absorb a sizeable amount of cotton into its stockpile, which over time will act in support of the market.

Plexus Cotton Limited

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