NY cotton futures continue to move higher this week

11 May '13

4 min read

However, although the world may add another five million bales to ending stocks next season, it doesn’t automatically translate into a bearish market environment. As we have learned this season, we need to pay attention to what happens to the balance sheet in the rest-of-the word and how much China is going to import. For example, if the ROW were to produce a 7 million bales surplus, but China imported 10 million bales, then stocks in the ROW would drop by another 3 million bales, which would be supportive to prices!

So where do we go from here? From a technical point of view the market has held exactly where it needed to and July is currently about 4 cents above the long-term uptrend line dating back to November, which is running through around 84 cents/lb today. The strong rebound we have seen over the last couple of weeks has also drawn some spec buyers back in, as evidenced by the rising open interest in July, although they will be quick to pull the plug on any signs of weakness.

From a fundamental point of view a lot depends on how new crop progresses over the next 3-4 weeks. If the Mid-South and Southeast get their crop in and West Texas receives some rain, then prices should come under pressure, especially in December, as growers will want to hedge some of their new plantings. On the other hand, if the weather continues to be obstructive, we could see some nervous traders trying to get out of their July shorts.

After the nice run up to 88 cents we adopt a more neutral or even a slightly bearish stance at this point, since the futures market has once again gotten itself ahead of the physical market and plantings should make rapid progress starting next week.

Plexus Cotton Limited

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