So where do we go from here? Today’s technical break would be more meaningful if speculators had a bigger stake in the cotton market. But they are watching mostly from the sidelines these days, with the trade being in control of the action. Physical activity has been quite strong lately, although the market may be transitioning from a tight cash market to a more ample supply situation that may keep some pressure on international prices through the first quarter.
However, strong rumors have it that Chinese reserve sales are about to resume any day now at 18’000 yuan/ton, which would render imports at the 40% tariff feasible in the low-to-mid 70s basis NY futures. We therefore believe that the market has strong support from 75 cents on down, but at the same time we see don’t see much room to the upside either given all the supply that’s becoming available.
The market may therefore get stuck in a range between 74/75 cents to the downside and 80/82 cents to the upside in the foreseeable future. Only once the current pile of cotton has been worked down somewhat and if China stays active on the import front will prices have a chance to move higher, which probably won’t be the case until the 2nd or 3rd quarter next year.
Plexus