NY futures trade sideways

09 Feb '08

3 min read

Even more eye-opening is the comparison to last year. On February 7, 2007 we had a total open interest of 195'578 contracts, or almost 89'000 contracts less than now. Open interest in new crop was less than half of what it is today.

As we have pointed out before, we believe that this relentless increase in open interest, sponsored by hedge fund and investment related buying, may over time wear down the trade's ability to keep pace with short hedge positions, especially at a time when we expect the US crop to shrink even further due to reduced plantings.

While a year ago open interest amounted to more or less the size of the US crop at 19.5 mio bales, the current open interest of 28.5 mio bales may be twice as big as the next US crop.

So where do we go from here? From a fundamental point of view the market seems to be at 'fair value', as mills are willing to commit to business near the lower end of this trading range, but they quickly back off once the market moves towards 70 cents.

Last week, US export sales amounted to decent 344'900 running bales of Upland and Pima, with 95'400 of those belonging to the coming marketing year. For the current season, total sales amount to around 9.7 mio statistical bales, which is around 2.3 mio bales ahead of last season's pace.

Therefore, even though business seems slow, let's not forget that we have already committed nearly 10 mio bales of US cotton and we are still only in early February, with half of the marketing year still to go.

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Plexus Cotton Limited

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