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NY cotton future ends lower due to unexpected export ban

09 Mar '12
5 min read

However, it was mainly short covering by speculators who fueled the advance, while the trade seemed to welcome the bounce as a selling opportunity, especially in December.

The latest CFTC report as of February 28 showed that large speculators had reversed their long-time net long to a 5'254 lot net short position.

This change came about as outright spec shorts increased their holdings by about 20'000 contracts over the last four weeks, while outright spec longs more or less maintained the same position. We assume that some of these newly established spec shorts got stopped out on Monday, which was probably the main driver behind this mini bull run.

Other than the 0.5 million bales net short by large specs and a 0.1 million bales net long by small speculators, the two major positions in the futures market belong to index funds (6.6 million bales net long) and the trade (6.2 million bales net short). As we all know by now, index funds are a very passive group of market participants and their position is probably not going to change much no matter what the market does.

This leaves the trade along with large specs as the major influence in the market. The trade is likely going to take a two-pronged approach to the market over the coming months. On the one hand it will buy back short futures in current crop that are hedging physical longs, while on the other hand we will likely see new shorts being put on in December once the Northern Hemisphere crop gets planted.

Some feel that the market should reflect carry across the board, but given how little cotton remains for sale in current crop, we don't believe that full carry will return before next season.

So where do we go from here? Despite some excitement due to the Indian situation, the market has gone nowhere over the last couple of weeks.

Old crop should remain fairly well supported due to the artificial tightness that has been created by the Chinese Reserve and now to some extent by India, while new crop is likely going to see increased pressure, as a third consecutive seasonal surplus and record ending stocks are being discounted by the market.

Plexus Cotton Limited

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