NY cotton futures trade sideways this week

16 Aug '14

5 min read

The US accounts for about 75% of this inventory build-up, as its stocks are predicted to increase from 2.6 to 5.6 million bales.

In other words, stocks outside the US are not really expected to rise by much, which places a lot more emphasis on the availability of US cotton, especially in the early part of the season.

It seems that the market is too optimistic in regards to the speed and price level at which new US crop will become available, especially with the government loan allowing growers to play the wait-and-see game.

Weekly US export sales of 187,800 net running bales were seen as disappointing by the market, since they did not quite meet expectations of 200,000-250,000 net running bales.

However, instead of assuming that mills were not ready to buy, one should consider the possibility that shippers were reluctant to sell.

The fact that there were 22 different markets interested in US cotton demonstrates widespread buying interest as in a few instances, decent bids did not get filled because sellers kept insisting on higher prices.

Current commitments for the 2014/15-season already amount to 4.75 million statistical bales and since a large portion of these commitments are for shipment between now and December, merchants may not be willing to add more sales as long as growers are holding out.

So where does the market go from here?

With growers not ready to sell at these levels and with specs not pushing the short side anymore, the path of least resistance seems to be up in the near term.

The chart is forming another triangle and a move above 65 cents would probably trigger some spec short covering.

Speculators, including non-reportable positions, have about 6.5 million bales in outright shorts and many of these shorts are protected by stops not too far above the current market.

So, it should be believed that the odds are decent for a short-covering rally to materialize, which would likely run into massive resistance from trade selling in the high 60s.

Growers don’t want to sell at 63/64 cents, but they would definitely do so near 70 cents.

It is therefore expected to see the market going sideways and move slightly higher in the near term, with the bear market taking a break, until crop pressure starts to develop towards the end of the year.

Fibre2fashion News Desk - India

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