Interviews
News Flash
NY cotton futures gain marginally last week
21 Apr '12
5 min read
Unfortunately we have more questions than answers at the moment, but we are keeping a keen eye on the world's largest producer, consumer and importer.
After the USDA had raised India's ending stocks by 1.6 million statistical bales in its April report, the Cotton Advisory Board (CAB) in India went the opposite direction this week by slashing its ending stocks number to the lowest level in 10 years due to higher exports for the current season as well as last year. While the USDA has Indian ending stocks at 9.55 million statistical bales (as of July 31), the CAB is at just 1.9 million statistical bales (as of September 30).
Although we need to allow for an adjustment since India's marketing year ends two months later than that of the USDA, we believe that there is still a discrepancy of around 3.5 million bales between the two entities. We may therefore see a substantial downward adjustment by the USDA over the coming months, since in its April report the USDA stated that “USDA's cotton supply and demand estimates for India rely mainly on official India data and are similar to the balance sheet of the India Cotton Advisory Board (CAB)”.
So where do we go from here? There are a lot of moving parts at the moment (China, India, planting intentions) that make it challenging to predict the market's next move. If China continues to import rather than release some of its strategic stock, then July should remain well supported and we may even see some decent short-covering rallies. However, if China shuts its door and we see more cancellations ahead, then current crop prices will come under pressure.
The direction of new crop prices will mainly depend on how much cotton will get planted over the next couple of months and how the weather cooperates. It will take a major drop in production next season to avoid a further increase in global stocks, which is not in the cards at the moment. We therefore still lean towards the short side in December and believe that bearish options strategies are the right approach.
After the USDA had raised India's ending stocks by 1.6 million statistical bales in its April report, the Cotton Advisory Board (CAB) in India went the opposite direction this week by slashing its ending stocks number to the lowest level in 10 years due to higher exports for the current season as well as last year. While the USDA has Indian ending stocks at 9.55 million statistical bales (as of July 31), the CAB is at just 1.9 million statistical bales (as of September 30).
Although we need to allow for an adjustment since India's marketing year ends two months later than that of the USDA, we believe that there is still a discrepancy of around 3.5 million bales between the two entities. We may therefore see a substantial downward adjustment by the USDA over the coming months, since in its April report the USDA stated that “USDA's cotton supply and demand estimates for India rely mainly on official India data and are similar to the balance sheet of the India Cotton Advisory Board (CAB)”.
So where do we go from here? There are a lot of moving parts at the moment (China, India, planting intentions) that make it challenging to predict the market's next move. If China continues to import rather than release some of its strategic stock, then July should remain well supported and we may even see some decent short-covering rallies. However, if China shuts its door and we see more cancellations ahead, then current crop prices will come under pressure.
The direction of new crop prices will mainly depend on how much cotton will get planted over the next couple of months and how the weather cooperates. It will take a major drop in production next season to avoid a further increase in global stocks, which is not in the cards at the moment. We therefore still lean towards the short side in December and believe that bearish options strategies are the right approach.
Plexus Cotton Limited
Popular News
Leave your Comments
Editor’s Pick
Esteemed Clients
-Ltd..jpg?tr=w-120,h-60,c-at_max,cm-pad_resize,bg-ffffff "Thermore (Far East) Ltd.")
.jpg?tr=w-120,h-60,c-at_max,cm-pad_resize,bg-ffffff "Telangana State Industrial Infrastructure Corporation Limited (TSllC Ltd)")
.jpg?tr=w-120,h-60,c-at_max,cm-pad_resize,bg-ffffff "Taiwan Textile Federation (TTF)")
