NY cotton futures retreat in reaction to USDA report
17 Jan '09
5 min read
However, the big question is what will happen next? With the pipeline empty, how much restocking is there going to be in the weeks and months ahead and how is the liquidity crunch affecting inventory management? Only the future will tell but what we can say at this point is that the total collapse that many have predicted has not materialized so far and while things are certainly not great, they may ultimately not be quite as negative as feared.
So where do we go from here? We believe that the price of the futures market is still tied to the AWP, with the spot month trading in a band of around 800-1200 points above the AWP. After the market traded at the upper end of this range last week, it temporarily fell below the lower boundary over the last couple of days before rallying back to a spread of 1069 points at today's close. Next week's AWP will be set at 37.84 cents and the daily calculation before today's advance stood at 36.96 cents.
Thanks to the market's strong performance today the AWP will start the new weekly calculation on a strong footing tomorrow, which could set the stage for a retest of the recent highs in the futures market, although there is still plenty of cotton around in various origins to keep the upside in check. On the other hand the downside will be equally limited as long as a considerable amount of exportable cotton is being withheld by the government of India and we therefore continue to see the market in a trading range of around 45 to 53 cents in the foreseeable future.
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