Cotton markets struck in narrow range

05 Sep '09

5 min read

Usually El Nino winters tend to be warmer than normal in the northern half of the US, while the southern half is typically colder and wetter than average. However, El Nino autumns are often found to be cool and in this regard there are two other developments that need to be watched.

The first one is low sunspot activity, which is often associated with cooler than normal global temperatures. We are currently in a trough in the 22-year sunspot cycle, but the 2007-2009 stretch has been unusually quiet in terms of days without sunspots and is second only to the 1911-1913 period. The second, more worrisome situation is the much colder than normal arctic air mass over Alaska and Northern Canada. Typically this air mass warms up during the summer, but due to increased volcanic activity there has been more dust and sulfur in the atmosphere than normal, blocking out sunlight and keeping this air mass on the cool side. The fear is that the jet stream could transport this cold air mass south and cause an early frost or freeze. Last week, when the calendar was still reading August, Minnesota experienced a rather unusual 'soft frost'.

In view of the above the market needs to be careful not to count the chickens before they hatch. Even though things look pretty good at the moment, there are still another six or seven weeks to go before we can consider this crop safe and for this reason the market still deserves a weather premium.

So where do we go from here? December has now been trading between 55 and 65 cents for nearly five months. Barring any problems on the weather front, it will be difficult to break out from this trading range. If the global balance sheet remains in equilibrium, then the 60 cents level looks like a logical pivot point. Above that level we will see an increase in supplies, while mills will be ready to buy and fix prices below 60 cents.

Plexus Cotton Limited

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