Chinese imports are portrayed as another “glass half empty” story with which we don’t agree. In June China imported 1.24 million statistical bales, which was 22 percent less than the month before and over 43 percent less than in June 2012.

Nevertheless, for the first eleven months of the current marketing year China has already imported 18.8 million bales and we are right on target to make the 20.0 million bales the USDA projects for the 2012/13-season.

Moreover, anyone who has paid attention to the latest USDA report should know that Chinese imports are expected to drop to only 11.0 million bales next season, or an average of just 0.92 million bales per month.

In other words, we are simply in an anticipated transition to lower Chinese imports and the June number was actually still a lot higher than what we expect Chinese imports to be from August onwards.

So where do we go from here? Although the overall sentiment seems to have turned a bit more bearish this week, we need to remember that a) current crop stocks remain extremely tight and b) new crop has still a long way to go.

Therefore, we don’t expect to see too much price pressure on December, especially since the trade is already sitting on a rather large net short position in New York. According to the most recent CFTC data, the trade was 13.9 million bales net short on July 9, which compares to just 7.7 million bales net short a year ago.

This large of a short position is rather remarkable given the smaller US crop next season and it leads us to believe that the trade may already have spent a lot of its ‘bearish bullets’. Therefore, unless there is widespread spec long liquidation, we see it difficult for the trade to force the market down before the outcome of new crop is known. In the longer term, for March delivery and beyond, we feel that the odds favor a slightly lower market, especially if the Northern Hemisphere crops turn out as well as expected.

Plexus