NY cotton futures continue relentless slide

Shipments of 141’200 running bales remained above the pace needed to make the current USDA export estimate. For the 2013/14-season we now have commitments of 11.1 million statistical bales, of which 10.1 million bales have so far been exported. Sales for the coming marketing year currently amount to 2.7 million statistical bales.

When we look at the US balance sheet for the 2014/15-season, we may end up with a total supply of around 20 million bales, assuming beginning stocks of around 2.6 million bales and a potential crop of 17.4 million bales. Subtracting domestic mill use of 3.7 million bales and current export commitments of 2.7 million bales, it would still leave 13.6 million bales available for sale. That’s a lot of cotton, especially if China is no longer as active on the import front as it has been in recent years.

So where do we go from here? As long as growers and merchants have a need to protect their physical long positions and speculators continue to liquidate their long holdings, the market is likely to remain under pressure. Only when we reach a point of equilibrium, where the selling gets matched by more aggressive mill buying and/or renewed speculative interest, does the market have a chance to arrest this brutal decline and to set itself up for a meaningful rebound.

At this point we have no idea at what level the market is going to regain its balance, although from a technical perspective the 66 cents level may offer some support, since it marks the low of June 2012. Also, sellers need to be careful not to get too carried away in all their doom and gloom, since a lot of the bearish arguments have already been discounted by now, while any potentially bullish factors are largely being ignored by traders.

The Indian Monsoon is still disappointing and Northern Hemisphere crops are by no means in the bag just yet. Further more, we are likely to see most of the certified stock disappear over the coming months (85’000 bales of de-certs so far in July) and the Dec/March spread has been narrowing by about 60 points since last week. In a market that acts as bearish as ours, we should see a move towards full carry between the various months and not the opposite. 

Plexus Cotton