NY futures rebound this week; trading volume remains low

The more attractive price level prompted mills to book 387’600 running bales of US Upland and Pima cotton over the last two weeks, with China taking the lion’s share at over 160’000 bales. For the season total commitments now amount to 4.0 million statistical bales, whereof 1.1 million bales have so far been shipped.

Considering that US exports are estimated at only 10.4 million bales this season, the US shouldn’t have too much trouble achieving this target despite competition from cheaper origins like India or West Africa. What may happen is that the US gets pushed into the role of residual supplier, but as long as China imports 10 million bales or more, all of this US cotton will eventually be needed.

So where do we go from here? With the exception of a failed breakout attempt to the upside, which lasted all of seven sessions, the December contract has been stuck in a sideways range between 82 and 89 cents since early February.

After holding support last week, the market is now trending back towards the middle of this range, although it is lacking momentum. As we have explained earlier in this report, the statistical picture currently support the status quo and it will take a significant event to get the market out of its comfort zone.

Adverse harvest weather, a change in China’s cotton policy or geo-political/macroeconomic events are such potential catalysts, although at the moment there is nothing on the horizon just yet. We therefore expect the market to continue to move sideways in the foreseeable future, supported by a strong Chinese bid below 80 cents and overhead resistance stemming from cheaper competing growths.

Plexus Cotton Limited