Since US inventories may be all but gone by the time new crop arrives, the market is paying close attention to what is happening with new crop plantings! Over half of the US cotton acreage is situated in Texas, which has been exceptionally dry so far this year. There is still ample time for moisture to arrive, but with every week that goes by without rain, the market is going to get a little more nervous.

So where do we go from here? The market closed today at a pivotal point! If the uptrend line that dates back to early November is broken, we will likely see another round or two of spec and technical selling, which could lead to a washout and force July down an additional 3-5 cents. However, if that were to happen, trade buying would likely intensify dramatically and eventually lead to a sharp rebound.

As we have stated above, the US needs to start rationing demand, not stimulate it even more. If the market were able to hold support in the days ahead, it would probably lead to a slow bottoming process and then a gradual climb higher as the many trade shorts in the July contract get covered. In any case, barring any unforeseen event on the macro front, we believe that the futures market is cheap enough at current levels and that prices will recover over the coming weeks.

The weather in Texas will play a major role in the market over the next 5-6 weeks! If it rains, it will likely put a cap on prices in the mid-80s, but if the drought continues, it could set the market on fire!

Plexus Cotton Limited