NY cotton futures move sideways this week

04 Aug '12

4 min read

However, December may once again prove to be a dangerous contract to be short, especially if something were to happen to the standing crop. Given the crazy weather pattern we have experienced this spring and summer, traders are going to hold their breath until the crops are finally off the field. We therefore sense a certain apprehension by the trade to be short December below 70 cents.

Outside markets have offered little impetus this week, as soybeans and corn consolidated recent advances at around 16 dollars/bushel and 8 dollars/bushel, respectively. Traders are awaiting the upcoming USDA report on August 10, which will offer a first look at the yield potential of these battered crops.

Based on private estimates we feel that the market could be in for a negative surprise, as corn may come in as much as 20 bushels/acre below the July estimate and soybean yields may drop another 4 bushels/acre. Although a certain amount of demand destruction is already under way, we feel that corn and soybean prices may have to go a lot higher to discourage enough demand to meet the substantially reduced level of supply.

So where do we go from here? The market remains indecisive, although from a technical point of view we should see a breakout from the current triangle formation over the next week or two. Given that there is also an important USDA report coming up next week, we should see a much more active market in the days ahead. We would be buyers of December on a break towards 66/67 cents, since we feel that the longer-term outlook doesn’t justify prices below that level.

Plexus Cotton Limited

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