News Flash

NY futures continue to slide this week

18 Jun '11

5 min read

As we have mentioned at the beginning, the situation in West Texas is getting worse week after week. According to the National Weather Service, the first two weeks of June (June 1 - 14) have been the warmest on record in Lubbock and the second warmest in Childress, with the average daily high measuring 10 degrees above normal in Lubbock and 13 degrees above normal in Childress.

Since only a trace of rain has fallen in Lubbock during these two weeks, it has also been the driest period on record. Abandonment estimates are approaching 35-40% as most dryland will likely not get planted, but under the current conditions even irrigated acreage is showing adverse effects from this extreme drought. More triple-digit heat is forecast through the weekend, with temperatures reaching as high as 110 degrees.

So where do we go from here? This is what we know - remaining supplies in the US are very tight and may not be enough to meet existing export commitments until October, plus the coming US crop is in trouble and may yield several million bales less than what was expected just a month or two ago, with numbers of less than 15 million bales already being mentioned.

And here is what we don't know - how much demand destruction has there been and at what level is annual demand nowadays? Is it at 119 million or is it at 114 million bales? Is the current lull just a reflection of the price-adjustment process or is there something more worrisome going on?

With the economies in the US, Europe and even China facing some serious issues, could there be another 'black swan' event around the corner? The market doesn't like uncertainty and currently there is plenty of it! Also, bull markets are typically demand-driven, but based on recent sales activity it is difficult to make the 'demand case' at the moment. Until we have some answers to the above questions, the market is likely to remain on the defensive!

Plexus Cotton Limited

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