NY futures move higher this week

27 Mar '09

5 min read

Next Tuesday the much anticipated USDA planting intentions report will be released. The consensus number seems to be around 8.5 mio acres, which would be 0.4 mio acres above the NCC estimate of early February. However, even though the USDA number will provide a good starting point, we need to realize that there are still a lot of farmers undecided on what to plant and they will probably wait until the last possible moment before making their final decision. With new crop prices creeping back up to 9 dollars a bushel, they offer an attractive alternative to 50 cents cotton and may therefore lure some farmers away.

Also, since last fall we have experienced rather extreme weather conditions in many parts of the globe and we could therefore see a few surprises on that front as well as we head into the planting season. It is once again too dry in Texas, both in the Coastal Bend and West Texas, but there is of course still ample time for this situation to correct itself.

All it takes is a few inches of rain here and there to get the crop going. However, we can't help but think that after several years of near misses in this weather roulette, there will sooner or later be a year where we won't escape trouble. The potential for adverse weather is just another piece in the puzzle that doesn't get us too excited about being short near 40 cents.

So where do we go from here? As expected, the market did face strong resistance near 45 cents and has started to retreat. It would not surprise us to see a retest of the 40-42 support area as we head into the May notice period, but we expect this support to hold. Longer term it remains to be seen whether the market can find a catalyst to get it out of its current sideways trend. We can think of several potential candidates, such as a new crop plantings surprise (acreage/weather), strong buying by hedge and index funds or changes in the macroeconomic picture (weaker dollar/inflation/return of confidence).

Plexus Cotton Limited

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