Interviews
Cotton market finally wake up
08 Aug '08
5 min read
The problem lies with China, where the USDA sees consumption at 54.0 mio bales (51.0 mio bales without the 'loss' factor). Our sources tell us that China's consumption is probably closer to 46-48 mio bales at the moment, which would bring the global production gap down to somewhere between 3.0 and 5.0 mio bales. If we further factor in a worse than expected economic slowdown, we may actually end up with a fairly balanced supply/demand situation in the coming season.
One interesting point is that the US, for the first time ever, is expected to export more cotton (14.5 mio) than it produces (14.0 mio) during the same season. This is only possible because beginning stocks are at their highest level ever at around 10.6 mio bales.
With US domestic mills taking around 4.5 mio bales this season, the US is expected to make a serious dent in its ending stocks number, to the point that it can't afford to let that much cotton go overseas again next season, unless it grows a bigger crop. In other words, at some point during the coming season the market will probably reach a point at which prices may have to rise enough to attract more acres or to discourage demand.
So where do we go from here? The fact that the market was able to reclaim and close above the previous support level of 70.73 cents, which it broke earlier in the week, should be seen as a positive development and this may invite some short-covering and fresh buying by technical traders. However, as has been the case over the previous four weeks, volume is not convincing on these up days and we therefore question the market's ability to generate any upside momentum.
From a fundamental point of view, mills have once again become quite active with the market near 70.00 cents, thus providing the necessary support for prices to hold and rebound. Nevertheless, as we have seen on previous occasions, mills are not in any hurry to pay much higher prices and demand is likely to dry up again once the market tries to move higher. We therefore expect prices to remain rangebound in the foreseeable future.
One interesting point is that the US, for the first time ever, is expected to export more cotton (14.5 mio) than it produces (14.0 mio) during the same season. This is only possible because beginning stocks are at their highest level ever at around 10.6 mio bales.
With US domestic mills taking around 4.5 mio bales this season, the US is expected to make a serious dent in its ending stocks number, to the point that it can't afford to let that much cotton go overseas again next season, unless it grows a bigger crop. In other words, at some point during the coming season the market will probably reach a point at which prices may have to rise enough to attract more acres or to discourage demand.
So where do we go from here? The fact that the market was able to reclaim and close above the previous support level of 70.73 cents, which it broke earlier in the week, should be seen as a positive development and this may invite some short-covering and fresh buying by technical traders. However, as has been the case over the previous four weeks, volume is not convincing on these up days and we therefore question the market's ability to generate any upside momentum.
From a fundamental point of view, mills have once again become quite active with the market near 70.00 cents, thus providing the necessary support for prices to hold and rebound. Nevertheless, as we have seen on previous occasions, mills are not in any hurry to pay much higher prices and demand is likely to dry up again once the market tries to move higher. We therefore expect prices to remain rangebound in the foreseeable future.
Plexus Cotton Limited
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