So where do we go from here? Although it may take some time until we get another USDA supply/demand report, indications are that global production won’t reach the September estimate of 117.42 million bales due to reductions in China, East Africa and Turkey, among others. China alone may have a million bales less than expected! We further have the potential for below average quality this season, especially if wet conditions were to continue.
With old crop supplies all but gone and with new crop still a big question mark, traders and mills have been in wait-and-see mode, which explains the rather dull trading conditions of late. Things are likely going to become a lot livelier once the crops are finally in.
We expect prices to remain well supported in the low 80s since the global production surplus is getting smaller, tenderable grades are less abundant than usual and Chinese imports of cotton and yarn keep inventories in the rest of the world at tight levels.
The market’s upside potential depends largely on what happens to crops over the coming weeks. If we don’t see any more setbacks, it will be difficult for prices to break out to the upside, but if adverse weather were to continue it could spark a powerful short-covering rally.
Plexus