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NY cotton futures Dec/March down to 35-point inversion

06 Sep '14
4 min read


Last week’s CFTC report confirmed that speculators were swapping their short positions with the trade during the market’s recent run towards 68 cents. During the week ending August 26, the trade had increased its net short position by 0.7 million to 4.0 million bales, while specs reduced their net short holdings by 0.6 million to 1.4 million bales.

On the other side of the ledger are index funds with a 5.4 million bales net long position. Although the trade has made some progress in increasing its net short position, it remains considerably under hedged given the size of the various Northern Hemisphere crops that are about to hit the market.

The market seems to be stuck in the middle of nowhere at the moment, as traders are not willing to sell December below 64 cents given the nearby supply constraints, while spec short covering has fizzled out due to a lack of upside momentum.

Volume reported on September 5 of less than 10,000 lots has been the lowest since July 23 and is indicative of the market’s lackluster mood. Although traders may shy away from shorting December at this level, they feel confident to do so in March and May, which has been fueling the inversion and this dynamic is likely to continue.

The market needs fresh impetus to get it out of its rut, which is likely to come from the weather front and/or the Chinese subsidy announcement. In the meantime, there does not seem to be an easy escape from this dull sideways pattern. (AR)

Fibre2fashion News Desk - India

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