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NY cotton futures continue to move higher this week

25 Apr '14
5 min read

At this point there are only 1.92 million running bales of Upland cotton still unshipped. Most of that cotton is owed to Turkey (427’000 bales), Mexico (385’000 bales) and China (303’000 bales). These three markets make up 58 percent of the total and we believe that the vast majority of those commitments will get shipped.

This leaves the rest of the bunch, with the only three other destinations owed more than 100’000 bales being Korea (123’000 bales), Thailand (115’000 bales) and Vietnam (107’000 bales). Behind that its mostly bits and pieces to a variety of markets. In other words, while there is certainly the possibility of additional cancellations, we don’t believe that they will be of a magnitude that will change the tight US balance sheet in any meaningful way!

The May notice period has quickly turned into a non-event, after last minute fixations and a large EFP on Wednesday cleared out nearly all of the remaining open interest. As of this morning there were just 752 lots (75’200 bales) still open in the May contract, which means that most of the certified stock of around 300’000 bales will not change hands, similar to what happened during the March delivery, when only around 11’000 bales were tendered. 
 
The fact that there was once again no certified stock made available should be unnerving to the shorts, since it is difficult for them to gauge what may happen when July goes off the board. Is the certified stock already committed or is there still hope that merchants will find a way to tender cotton in order to reverse the July/Dec inversion? Unfortunately many of these shorts won’t be around to find out, because they can’t afford to roll the dice all the way up to the July notice period. 
 
So where do we go from here? A year ago the market dropped about 800 points on spec liquidation in the first three weeks of April, with May trading at 81.00 cents and the July/Dec spread closing at 50 points carry. A couple of weeks ago it looked as if the market was going to follow in last year’s footsteps, when specs started to cut their long positions, but the strong rebound over the last two weeks has sent prices on a different track. Unlike last year, traders currently don’t have the luxury of time, since rolling existing positions forward is not an option when there is an inversion of 1000 points looming.
 

Plexus Cotton Limited

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