NY cotton futures remain under pressure

07 May '11

4 min read

However, for now we seem to have entered another phase of de-leveraging, during which money is being moved from 'riskier' assets, such as commodities, into 'safer' instruments, such as cash and bonds. The good thing in regards to cotton is that spec involvement is currently relatively small compared to what it was back in 2008 or compared to other commodities such as crude oil, corn and precious metals. In other words, speculators don't really have that much to move out of cotton market.

The latest CFTC report showed that large specs owned just 3.1 million bales in outright longs and 1.0 million bales in outright shorts, although they still had a relatively large spread position on at 9.4 million bales. The trade is currently the most dominant force in the market with 8.2 million longs and 16.1 million shorts. Index funds, which are a much more passive investment group, owned 6.3 million in outright longs and 1.3 million in outright shorts, while the fourth group, small speculators, owned 2.0 million longs versus 1.4 million shorts.

So where do we go from here? A weak cash market and negative vibes from outside markets are exerting pressure on NY futures at the moment. In order for the market to stabilize we need to see mills step forward in greater numbers. There are still 2.4 million bales to fix in July, which should provide some support, but what's really needed is a decent round of mill buying. Until that happens, the spot month will probably continue to drift lower.

New crop seems quite attractive at current prices given the planting problems in the US, where some areas are being inundated, while others remain in desperate need for some rain.

Plexus Cotton Limited

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