NY cotton futures slip marginally as Dec & Mar shed weight

18 Oct '14

5 min read

This increase in ROW stocks is the result of a 13.19 million bales production surplus, which is only partially absorbed by Chinese imports of 7.0 million bales. That’s quite a change from last season, when a 12.94 million bales surplus was more than offset by 14.12 million bales in Chinese imports.

This slowdown in Chinese imports will most likely be felt after the turn of the year, because China is currently still chasing after some hard to find high grades in order to fill existing quotas before the end December.

In other words, the cotton market may feel a ‘double whammy’ in January when ROW stocks are beginning to accumulate while Chinese imports are starting to slow down.

Unsettled financial markets added another twist to the cotton story this week, as stock markets around the globe went into corrective mode and the 10-year Treasury yield dipped below 2 percent.

Markets don’t like uncertainty and there is plenty of it at the moment between an explosive Middle East, the Ebola threat and some soft economic numbers.

However, while a deflationary shock is certainly possible in the short-term, one shouldn’t discount the power of the Fed and other Central Banks, since they will fight deflationary forces tooth and nail with more money printing.

Therefore, to bet on collapsing asset prices is to bet against the Fed, which is not a winning proposition.

Unlike in the past, when Central Banks were the lender of last resort, they are now the buyer of last resort and they basically have unlimited powers to print money in order to bid up asset prices such as stocks and real estate.

It is more than a bit ironic that creating inflation has suddenly become the stated goal of Central Banks!

Although the latest countertrend move seems to be over, December should remain on a relatively firm footing until the bulk of the US crop has been harvested and the quality composition is known.

Once December is off the board and inventories are beginning to build, the board is likely to come under further pressure and we should also see carrying charges appear between March and July.

Various government support programs may slow and/or delay the decline, but it is difficult to envision anything but a sideways to lower market going forward due to the massive global inventory, some of which is now starting to switch back to the ROW. (AR)

Fibre2fashion News Desk - India

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