NY Cotton Futures continue to crater this week

05 Jul '14

4 min read

A news story talking about China’s intention to reduce its massive corn stocks reminded cotton traders that we are in the midst of a fundamental shift in Chinese policy, as the government is now actively trying to reduce its inventories in Ag commodities such as corn, soybeans and cotton after years of accumulating them.

Although the pace and extent of this Chinese de-stocking scheme is not known yet, the intent seems clear and we have entered a phase where the burden of holding inventories is shifting back to the rest of the world.

So where do we go from here? The market is still in search of bottom, but so far potential buyers seem to have no fundamental or technical reason to act in support of the market. It is difficult to come up with any meaningful bullish arguments at the moment, although we need to keep an eye on the Indian Monsoon, which has been irregular so far.

We also believe that most of the certified stock will get shipped over the next two or three months, which could spook some shorts and give the market a temporary boost. However, as long as the trade remains under-hedged and ready to sell into every bounce that presents itself, the path of least resistance is down.

Plexus Cotton Limited

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