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News Flash
NY futures slip this week
14 Nov '09
5 min read
The certified stock has increased further this week and now amounts to over 507'000 bales if we count the nearly 50'000 bales currently under review. In order for an inventory this large to attract a taker or for the current owners wanting to keep it, either the absolute price level has to be attractive or the Dec/March spread needs to be wide enough, neither of which is the case just yet. At this particular point in time the certified stock is probably the most dominant factor in the futures market. If the spread widens to around 450 - 500 points, a strong taker will most likely emerge, otherwise the market will have to find a price level which makes this block of cotton attractive.
If we look beyond this certified stock game, we are presented with a statistical situation that is one of the most bullish in many years. Not only does the latest USDA report predict the largest foreign production gap ever at 19.9 million bales, but we will have the smallest US crop in 20 years at just 12.5 million bales. Even if the US sends an estimated 10.5 million bales of exports overseas, there will still be a hole of 9.4 million bales that needs to come from stockpiles. And in all this numbers juggling we haven't even addressed the quality issues that some of the major crops face this season.
So where do we go from here? The last couple of sessions have sent traders through a full range of emotions, from fear of missing the boat to becoming greedy with their buying and fixation levels. The certified stock is doing its job in keeping the upside contained for now, but once December is out of the way the range will once again become wide open for the next three months. Unless we see a major shift on the macroeconomic side, we believe that the market has little downside from here, since there are many more buyers at 65/66 cents than sellers. Although we may spend some more time in a sideways pattern, we feel that the market will ultimately reflect the worldwide supply shortage and trade higher.
If we look beyond this certified stock game, we are presented with a statistical situation that is one of the most bullish in many years. Not only does the latest USDA report predict the largest foreign production gap ever at 19.9 million bales, but we will have the smallest US crop in 20 years at just 12.5 million bales. Even if the US sends an estimated 10.5 million bales of exports overseas, there will still be a hole of 9.4 million bales that needs to come from stockpiles. And in all this numbers juggling we haven't even addressed the quality issues that some of the major crops face this season.
So where do we go from here? The last couple of sessions have sent traders through a full range of emotions, from fear of missing the boat to becoming greedy with their buying and fixation levels. The certified stock is doing its job in keeping the upside contained for now, but once December is out of the way the range will once again become wide open for the next three months. Unless we see a major shift on the macroeconomic side, we believe that the market has little downside from here, since there are many more buyers at 65/66 cents than sellers. Although we may spend some more time in a sideways pattern, we feel that the market will ultimately reflect the worldwide supply shortage and trade higher.
Plexus Cotton
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