NY futures continues to slip this week

05 Sep '08

5 min read

It is reported that the Ospraie fund lost over 26 percent in August alone, while the 2.5 trillion dollar Hedge Fund industry is headed for its worst yearly performance since records began in 1990. The sell-off in commodities and the recent rally of the US dollar are definitely related to the liquidation of Hedge Fund positions after bets on these assets have gone wrong. It remains to be seen how long it takes before this process will run its course.

As we pointed out in previous reports, the good news in regards to cotton is that there is really not that much left to liquidate in terms of speculative positions. Since February 26, large and small speculators have reduced their net Futures and Options exposure by almost 120'000 contracts, while Index Funds pared their positions by nearly 24'000 contracts.

In other words, there has already been a lot of selling by the Hedge Fund community and the latest CFTC report showed outright 'large spec' longs at just 29'706 contracts, while outright 'large spec' shorts amounted to 36'953 contracts.

Again, we don't know how much more de-leveraging there is to come, but one analyst pointed out today that Hedge Funds are currently sitting on their largest cash balance ever and that this will eventually be a very powerful source when they decide to come back to the market.

So where do we go from here? We believe that in the short-term the market will remain in its 67 to 72 cents trading range, where it has been stuck for over five weeks now. Only once the current inventory is gone and somewhat more friendly fundamentals come into the picture during the course of next season do we see a chance for the market to move higher.

Plexus Cotton Limited

More Textiles News - United Kingdom...