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Plexus cotton market report indicate uptrend for January '09

31 Jan '09

5 min read

How much downside the market has depends on how aggressive these various origins are going to be with their offers. So far there has not been much price pressure thanks to India and Central Asia stepping aside, but that could change at any given moment. Until that happens the US is likely to capture a decent share of the available export business and it has already committed over 9 mio bales, with more than six months to go in the current marketing year.

The involvement of speculators is another factor we need to keep a close eye on. Even though there were a few flurries of buying by speculators recently, most of them are still sitting on the sidelines. The latest CFTC report as of January 20 showed us that outright positions held by traditional speculators amounted to just 1.7 mio bales long and 1.3 mio bales short, which is a fraction of what they had a year ago. Index funds too have done very little over the last couple of months as they continue to hold a net long position of about 6.2 mio bales. With speculators inactive, it has been the trade with its 6.8 mio bales net short position that has been the most involved recently and as we have already pointed out some of these shorts have been forced into action as the market has moved higher, thereby feeding the rising trend.

Even though the chart is displaying a healthy looking uptrend channel that started a little over two months ago, we are missing an increase in trading volume and open interest, which are both necessary to validate such a trend. Therefore, unless we see more conviction from buyers anytime soon we remain suspicious of the market's ability to continue this trend and as a result we could see the market eventually slip back into the mid 40's, although the upcoming March notice period may keep sellers at bay over the next few weeks.

Plexus Cotton

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