Just look at the most recent import data! According to customs, China imported 529’000 tons of cotton in March, bringing the total for the first eight months (August/March) to 3.04 million tons, which amounts to just under 14.0 million statistical bales.

The USDA increased its estimate for Chinese imports to 16.5 million bales last week, which may prove to be conservative! The rest-of-the-world has a production surplus of 13.26 million bales this season, and it has taken China just eight months to absorb this entire surplus with its 14 million bales in imports!

So where do we go from here? With hedge funds in “switch off” mode, the path of least resistance is clearly down at the moment. Looking at the chart, there is not a whole lot of support before we get to 82 cents in July.

This price level also makes sense from a physical point of view, given that it translates into landed Far East prices of around 93/94 cents, which is where US high grades have been selling. We therefore feel that the market has another 2-3 cents of downside potential, at which time both technical and physical support should kick in! Whether the next support level is simply a pause in a market trending lower or a base from which to attempt another move higher remains to be seen!

Plexus Cotton Limited