NY cotton futures trade sideways this week

Chinese imports of raw cotton amounted to just under 800’000 statistical bales in November, bringing the total for the first four months of the marketing year to 3.63 million bales.

With the December number likely to be larger as shippers are trying to beat the looming deadline, we believe that total imports since August will be close to five million bales by the end of this month. It is therefore quite conceivable that China will get to 11.0 million bales of imports as predicted by the USDA, considering that there will be a 4.1 million bale Tariff Rate Quota (at one percent duty) and probably some additional processing and/or sliding scale quotas available in 2014.

So where do we go from here? The market seems to have a lot of underlying support from speculators as well as the trade. With the chart looking constructive, speculators have plenty of room to add to their net long and will likely do so on dips.

The trade may wish for the futures market to move lower, but because of the advanced stage of US sales, the unwinding of basis-long positions over the coming months and the large amount of unfixed on-call sales, the trade is probably going to be a net buyer of current crop futures for the remainder of the season. In other words, for whatever the reason may be, there are currently more traders inclined to buy the market than to sell it and until this situation changes, the market is likely to remain on a firm footing.

However, even though the market may maintain its current price level, merchants will try to force carry back onto the board by boosting the level of certified stock over the coming months. This morning the certified stock amounted to less than 42’000 bales, but we expect this number to grow considerably next month. We therefore see a market that will continue to trade in a relatively tight range between 80 and 85 cents, but with March starting to slip below May.

Plexus