Cotton markets see strong volumes and rising open interest
27 Jun '08
4 min read
Even though open interest has dropped recently, it is still large in comparison to a US crop that will yield only about 14 mio bales next season. Therefore, we expect the trade to reduce its net short position further in the months ahead, and this may lead to higher prices, because these shorts need to find a substitute. Speculators come to mind, but they have no appetite to short a rising market in an inflationary environment.
Even though there is no shortage of cash cotton at the moment, we may find ourselves in a market that is getting its strength from strong outside forces, a longer-term bullish supply/demand scenario and the fact that it takes a lot more short sellers than before to offset these index fund longs. Unless we have a reversal in the commodity complex, we do not see much hope for cotton prices to drop a lot from current levels, which are still cheap by historical standards.
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