Cotton plantings to drop in coming season

07 Feb '09

5 min read

The news on the economic front is not encouraging. Consumers and businesses are suffering from a major debt hangover and the government's apparent cure is to provide the patient with another shot of what made him sick in the first place. The proposed stimulus plan won't solve the problem because it doesn't address the structural problems of the economy and instead focuses on more entitlement and deficit spending.

However, the unintended consequence of getting deeper into debt without having anything to show for it in the long run may eventually wake up foreign bondholders, who may either refuse or simply be unable to invest more of their savings into a losing cause. Once that happens, the only way out will be the printing press, which is when all things denominated in US dollars will start to rise, be it stocks, real estate, commodities, as well as your cup of coffee at Starbucks. We are not quite there yet and we may have to live through a few more rounds of de-leveraging, but with every new spending bill we are getting closer to the inevitable.

So where do we go from here? NY futures may hold up as we head into First Notice Day, but thereafter we expect values to come under pressure since there is simply too much cotton still looking for a home, while demand remains depressed and mills are in no hurry to change their hand-to-mouth buying pattern.

Also, unless the rally continues it will be just a matter of days until the uptrend line on the chart catches up to the market and crosses over, which will take spec buying out of the equation. In other words, we believe that the market has more downside risk than upside potential in the coming weeks and are therefore looking for a pullback.

Plexus Cotton

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