Plexus cotton market report

11 May '07

3 min read

We believe that the market has become a bit too frightened by this July 31st ending stocks number, which is not really significant other than telling us how many bales are left in the country at that particular date. What really matters in the end is whether these bales are needed by the marketplace, and we still believe that they are.

The Spec/Hedge report revealed that spec long liquidation and new spec short positions were the main culprit behind last week's decline. Spec longs got out of 1'493 contracts, while spec shorts added 2'100 contracts and they now own over 10.6 mio of the 22.2 mio bales in open interest.

On the other hand, the trade added 3'353 contracts on the long side and bought back 240 shorts. If we take index funds of around 10 mio bales out of the equation, the trade currently owns a net short position of around 9 mio bales, which is mostly held against existing or potential physical long positions in US and foreign growths, as well as unfixed on-call sales.

We estimate that about half of the cotton that is going to be redeemed from the loan over the coming weeks already has a short hedge against it.

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Plexus Cotton Limited

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