NY futures stuck in middle of six-month sideways trend

Unfortunately the forecast calls for more unsettled and stormy weather as we head into fall, which has the potential to delay harvest and reduce quality and yield. In the arctic region, cooler than normal air masses are filled with volcanic debris from several eruptions in May and June, and as they find their way south they clash with humid air streaming in from the Gulf, which causes these excessive downpours and cooler temps. This set-up is not likely to change anytime soon and therefore poses a threat to crops in the eastern half of the US.

So where do we go from here? For now the market seems to be kept in balance by a friendly short-term outlook and a bearish longer-term view, with most of the action being confined to the Dec/March spread. China still holds the key to international prices in the coming season and traders are trying to assess whether China will indeed absorb the 10-11 million bales production surplus in the rest of the world as predicted by the USDA.

If China does import said amount, then the status quo is likely to prevail for another season, although the market nevertheless expects a bearish announcement out of China at some point during the season.

However, the trade seems to have already preempted a bearish outcome to some degree, judging by the large net short it owns in the futures market. By leaning too heavily on the short side, especially in the fickle December contract, the trade becomes vulnerable to an adverse market move, especially if there are going to be some weather related scares as we head into harvest. It ultimately comes down to properly timing the market and in that regard we avoid being exposed to December, using March and later deliveries for downside protection instead.

Plexus Cotton Limited