Sep '14
An improving technical picture and a tight cash market lifted the market towards 68 cents this week, before momentum started to roll over again yesterday.
The crossover of the 7-day versus 21-day exponential moving averages sparked some spec buying on Monday, which ran into an increasing amount of trade selling on the way up, Plexus said in its latest report
The jump in open interest suggests that while some specs swapped shorts with the trade, there were also some additional spec longs and trade shorts established.
The current market situation is probably best described by the proverbial “bird in hand versus two in the bush” analogy.
Although Northern Hemisphere crops still loom large, merchants and mills are finding out that it may be a while before these abundant supplies exert their pressure on the market and that cotton for nearby shipment is both pricey and hard to come by.
Just take the US for example, where electronic warehouse receipts (EWR) show only 725,000 bales still open for 2013/14 and earlier seasons, of which 422,000 are currently under shipping order.
Domestic mills may hold some inventory in addition to that and there is also some cotton in transit, but the US pipeline is about as depleted, as ever seen at this time of the year.
Another measure, are outstanding government loan stocks, which amounted to just 58,000 bales last week, compared to 332,000 and 397,000 bales in the previous two seasons.
Although new crop cotton from South Texas and to a small degree from Arizona is starting to move in – 276,000 bales as of August 29, growers are apparently reluctant to sell their cotton at the current market level and are holding out for better prices.
This puts shippers in a bind, since they are struggling to find cotton for nearby commitments, many of which were sold at higher prices.
Unshipped export commitments currently amount to 4.9 million statistical bales, of which an estimate indicates that around 2.7-3.0 million are for shipment before the end of the year, possibly more.
In addition to that, US mills consume a little over 0.3 million bales per month, which adds up to around 1.3 million bales between now and the end of December.
In other words, estimates indicate that, merchants have currently over 4 million bales of US sales on their books that need to be applied and shipped before the end of the year, plus whatever mills intend to buy on top of that over the coming months.
Mills still have a lot to cover for October/December shipment, led by China who still needs to fill a sizeable amount of import quotas before the end of December.
China was once again the biggest buyer of US cotton last week, taking 93,100 of the 267,300 running bales that were sold to 18 different markets.
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